Banks use LGD, probability of default (PD) and exposure at default (EAD) to set capital and loan pricing under Basel rules. Secured loans have lower LGD because collateral can be sold.
How to use the LGD Calculator – Loss Given Default
- Exposure at default (EAD)
- Recovery rate
- Probability of default
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the exposure at default, the recovery rate and the probability of default.
Tips
- Check whether rates are quoted annually, semi-annually or per period.
- Bond prices and yields move in opposite directions – a higher yield means a lower price.
- Use the bond’s clean price (without accrued interest) for yield calculations.
- Credit ratios are most useful when tracked over several years.
Common mistakes to avoid
- Confusing the coupon rate with the yield.
- Using the face value instead of the market price.
- Forgetting that callable bonds may be redeemed before maturity.
Inputs explained
| Field | What to enter |
|---|---|
| Exposure at default (EAD) | Amount in your currency |
| Recovery rate | In % |
| Probability of default | In % |
What each result means
- Loss given default = [Exposure at default (EAD)]×(1 – [Recovery rate]÷100)
- Loss severity = 100 – [Recovery rate]
- Expected loss = [Probability of default]÷100×[Loss given default]
Example values
How the main result changes when Exposure at default changes and everything else stays at the example values above:
| Exposure at default (EAD) | Loss given default |
|---|---|
| 250,000 | 150,000 |
| 375,000 | 225,000 |
| 500,000 | 300,000 |
| 625,000 | 375,000 |
| 750,000 | 450,000 |
| 1,000,000 | 600,000 |
Formula
LGD (amount) = exposure at default × (1 − recovery rate)Loss severity = 1 − recovery rateExpected loss = PD × LGDWorked example
Inputs — Exposure at default (EAD): $500,000; Recovery rate: 40 %; Probability of default: 3 %.
Results — Loss given default = $300,000.00; Loss severity = 60 %; Expected loss = $9,000.00.
Frequently asked questions
What is LGD?
The loss a lender suffers when a borrower defaults, after recoveries.
What is a typical recovery rate?
Senior secured loans often recover 60–80%; unsecured bonds 30–40%.
How is expected loss calculated?
PD × LGD (or PD × LGD% × EAD).
What formula does the LGD Calculator – Loss Given Default use?
LGD (amount) = exposure at default × (1 − recovery rate).