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Hi @David Harper CFA FRM , One formula I am struggling to understand is the adjustment to the z-score to account for the costs involved with the type I and type II errors ( => opportunity cost vs. LGD) in De Laurentis - Ch3 (Ratings Assignment Methodologies) pp 59 and 60. ln(q(solvent) *...

In Hull - Risk Management and Financial Institutions, it is stated, in page 222 (10.10 using GARCH(1,1) to forecase future volatility), that: "the expected value of u(n+t−1)^2 is σ(n+t−1)^2". Is this something obvious? Can anybody explain why this should be the case? Thanks!