BFM Numericals Solved · Part 4: Risk and capital

Chapter 11: Credit risk: expected loss and risk weights

How much a loan book can be expected to lose, how much worse a bad year can be, and how much capital the standardised approach asks a bank to hold against it.

Open Chapter 11 in the e-book The book and its prices

Buyers of the e-book, or of the print copy, which includes it, read the whole chapter. Everyone can read the free sample, pages 1 to 24 of the e-book.

In this chapter

11.1Expected lossp. 233
A portfolio’s expected lossp. 234
11.2Exposure at defaultp. 235
11.3Loss given defaultp. 236
11.4Unexpected lossp. 237
Four 30-second routesp. 238
11.5Risk-weighted assetsp. 239
Collateral that cuts exposurep. 240
11.6Off-balance-sheet itemsp. 241
11.7Pricing for riskp. 242
Which formula? A map of the chapterp. 243
Exam traps and conventionsp. 244
Practice: 30 questions in three roundsp. 245
Answers, with every wrong option explainedp. 248
Make it stickp. 251
Chapter 11 on one pagep. 252

Corrections and updates

None for this chapter so far. Every correction to the book, and any rule that changes after its date, is listed on the errata page.