This notebook compares the risk weight the two approaches produce for the same exposure, as its PD varies. The FIRB weight moves with the PD; the STD weight does not, so it stands as a fixed level for
The conditional PD is a borrower's probability of default under a severe, economy-wide downturn, rather than in a normal year. It is what the capital formula measures the risk weight against, and it i
Loan 1 and Loan 2 are the same loan to the same counterparty, differing only in that Loan 2's obligor has defaulted. This comparison is about unexpected loss and expected loss, and how the two approac
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