Expected Loss Calculator

✖Default Probability refers to the likelihood that a borrower or debtor will fail to meet their financial obligations, such as making loan repayments or servicing debt.ⓘ Default Probability [DP]			+10% -10%
✖Loss Severity given Default refers to the proportion of financial loss incurred if a borrower or debtor defaults on their obligations.ⓘ Loss Severity given Default [LSD]			+10% -10%

✖Expected Loss represents the anticipated financial loss resulting from a specific risk, calculated as the product of the loss severity, probability of default, and exposure at default.ⓘ Expected Loss [EL]

⎘ Copy

👎

Formula

✖

Expected Loss

Formula

`"EL" = "DP"*"LSD"`

Example

`"0.04"="0.05"*"0.80"`

Calculator

LaTeX

Reset

👍

Expected Loss Solution

STEP 0: Pre-Calculation Summary

Formula Used

Expected Loss = Default Probability*Loss Severity given Default
EL = DP*LSD
This formula uses 3 Variables

Variables Used

Expected Loss - Expected Loss represents the anticipated financial loss resulting from a specific risk, calculated as the product of the loss severity, probability of default, and exposure at default.
Default Probability - Default Probability refers to the likelihood that a borrower or debtor will fail to meet their financial obligations, such as making loan repayments or servicing debt.
Loss Severity given Default - Loss Severity given Default refers to the proportion of financial loss incurred if a borrower or debtor defaults on their obligations.

STEP 1: Convert Input(s) to Base Unit

Default Probability: 0.05 --> No Conversion Required
Loss Severity given Default: 0.8 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

EL = DP*LSD --> 0.05*0.8

Evaluating ... ...

EL = 0.04

STEP 3: Convert Result to Output's Unit

0.04 --> No Conversion Required

FINAL ANSWER

0.04 <-- Expected Loss

(Calculation completed in 00.004 seconds)

You are here -

Home » Financial » Fixed Income Securities » Expected Loss

Credits

Created by Keerthika Bathula

Indian Institute of Technology, Indian School of mines, Dhanbad (IIT ISM Dhanbad), Dhanbad

Keerthika Bathula has created this Calculator and 50+ more calculators!

Verified by Aashna

IGNOU (IGNOU), India

Aashna has verified this Calculator and 25+ more calculators!

< 14 Fixed Income Securities Calculators

Accrued Interest

Go Accrued Interest = (Face Value*Total Annual Coupon Rate*Days since Last Payment Date)/(Number of Coupon Payments per Year*Accrual Period)

Conversion Premium

Go Conversion Premium = Conversion Value-Market Price of Convertible Bond

Conversion Ratio

Go Conversion Ratio = Par Value at Maturity/Conversion Price of Equity

Convexity Adjustment

Go Convexity Adjustment = Bond's Convexity*(Change of Yield^2)*100

Callable Bond Price

Go Callable Bond Price = Non Callable Bond Price-Call Option Price

Nominal Yield

Go Nominal Yield = (Total Annual Interest Payments/Face Value)*100

Expected Loss

Go Expected Loss = Default Probability*Loss Severity given Default

Putable Bond Price

Go Putable Bond Price = Non Putable Bond Price+Put Option Price

Conversion Value

Go Conversion Value = Market Price per Share*Conversion Ratio

Floating Interest Rate

Go Floating Interest Rate = Reference Rate+Fixed Spread

Dirty Price

Go Dirty Price = Clean Price+Accrued Interest

Clean Price

Go Clean Price = Dirty Price-Accrued Interest

Semi Annual Bond Equivalent Yield

Go Semi Annual Bond Equivalent Yield = Yield per Semi Annual Period*2

Loss Severity

Go Loss severity = 1-Recovery Rate

Expected Loss Formula

Expected Loss = Default Probability*Loss Severity given Default
EL = DP*LSD

What is Expected Loss ?

Expected loss is a pivotal metric in risk management, representing the average financial impact anticipated from potential losses within a specific portfolio or exposure. It combines the probability of an adverse event occurring, such as a borrower defaulting, with the severity of the resulting loss and the exposure at the time of the event. This calculation enables businesses, financial institutions, and insurers to gauge the overall risk within their operations, allocate appropriate reserves, set pricing strategies, and make informed decisions regarding risk acceptance or mitigation. By quantifying the expected loss, organizations can better prepare for uncertainties, safeguard financial stability, and optimize risk-return trade-offs.

How to Calculate Expected Loss?

Expected Loss calculator uses Expected Loss = Default Probability*Loss Severity given Default to calculate the Expected Loss, The Expected Loss is the anticipated financial loss resulting from a specific risk event, calculated as the product of loss severity, probability of default, and exposure at default. Expected Loss is denoted by EL symbol.

How to calculate Expected Loss using this online calculator? To use this online calculator for Expected Loss, enter Default Probability (DP) & Loss Severity given Default (LSD) and hit the calculate button. Here is how the Expected Loss calculation can be explained with given input values -> 0.04 = 0.05*0.8.

FAQ

What is Expected Loss?

The Expected Loss is the anticipated financial loss resulting from a specific risk event, calculated as the product of loss severity, probability of default, and exposure at default and is represented as EL = DP*LSD or Expected Loss = Default Probability*Loss Severity given Default. Default Probability refers to the likelihood that a borrower or debtor will fail to meet their financial obligations, such as making loan repayments or servicing debt & Loss Severity given Default refers to the proportion of financial loss incurred if a borrower or debtor defaults on their obligations.

How to calculate Expected Loss?

The Expected Loss is the anticipated financial loss resulting from a specific risk event, calculated as the product of loss severity, probability of default, and exposure at default is calculated using Expected Loss = Default Probability*Loss Severity given Default. To calculate Expected Loss, you need Default Probability (DP) & Loss Severity given Default (LSD). With our tool, you need to enter the respective value for Default Probability & Loss Severity given Default and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

Home

FREE PDFs

🔍 Search