Hey there,
After quite some struggling, i came up with the following formula, which i think is written nowhere, for Expected Loss :
Discounted = Undiscounted + Premium - Time Value
Takeaways :
D iscounted > U ndiscounted <=> P remium > T ime Value <=> Premium for credit risk dominates time value of money
D iscounted < U ndiscounted <=> P remium < T ime Value <=> Premium for credit risk is less than time value of money
D iscounted = U ndiscounted <=> P remium = T ime Value <=> Premium and time value offset each other
Hint :
A quick way to remember those, is to rearrange as 2 pairs, in alphabetical order :
D vs U, and P vs T : The 2 pairs have the same sign (ex: D P
Voilà !
h21
April 22, 2016, 7:32pm
#2
gnrocks:
Hey there,
After quite some struggling, i came up with the following formula, which i think is written nowhere, for Expected Loss :
Discounted = Undiscounted + Premium - Time Value
Takeaways :
D iscounted > U ndiscounted <=> P remium > T ime Value <=> Premium for credit risk dominates time value of money
D iscounted < U ndiscounted <=> P remium < T ime Value <=> Premium for credit risk is less than time value of money
D iscounted = U ndiscounted <=> P remium = T ime Value <=> Premium and time value offset each other
Hint :
A quick way to remember those, is to rearrange as 2 pairs, in alphabetical order :
D vs U, and P vs T : The 2 pairs have the same sign (ex: D P
Voilà !
I have always have problem with understanding the premium of credit risk, can someone help me understand where this comes from and how that play a role in this??