The Basle II parameter called Loss Given Default (LGD) aims to estimate the expected losses on not yet defaulted accounts in the case of default. Banks firstly need to collect historical recovery data, discount the recovery income and cost cash flow to the time of default, and calculate...

The Basle II parameter called Loss Given Default (LGD) aims to estimate the expected losses on not yet defaulted accounts in the case of default. Banks firstly need to collect historical recovery data, discount the recovery income and cost cash flow to the time of default, and calculate...

In this paper we extend the existing literature on xVA along three directions. First, we extend existing BSDE-based xVA frameworks to include initial margin by following the approach of Crépey (2015a) and Crépey (2015b). Next, we solve the consistency problem that arises when the front- office...

When used as derivatives collateral, securities have to be exchanged for cash in the repo market. The repo market applies different haircuts from collateral agreements, creating a pocket of unsecured credit exposure and uncovered funding. Moreover, repo tenors are typically in months, so the...

This paper provides a theoretical and empirical analysis of alternative discount rate concepts for computing LGDs using historical bank workout data. It benchmarks five discount rate concepts for workout recovery cash flows to derive observed Loss rates Given Default (LGDs) in terms of economic...