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university of southern california Operations And Supply Chain Management Assignment Help - Derivatives-Capital


Question - A bank has booked a loan with total commitment of USD 50,000 of which 80% is currently
outstanding.
The default probability of the loan is assumed to be 2% for the next year and loss given default (LGD)
is estimated at 50%. The standard deviation of LGD is 40% and the standard deviation of the default
event indicator is 7%. Drawdown on default is assumed to be 60%. The expected losses for the bank
are:
a. USD 380
b. USD 420
c. USD 460
d. USD 500

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