Hi David,
I am writing to seek some clarification on the calculation of PD and LGD in the edit grid. I noticed that the expected rate of return of assets is used instead of the risk free rate.While on the other hand, i have observed in the subsequent spreadsheet on the calculation of the value of equity and debt using the Merton model, the risk free rate is used. Could you explain the rationale?
i have observed the same under the de servigny reading Chapter 3 on Default Risk-Quantitative Methodology
Thanks a lot
Regards
Peggy
I am writing to seek some clarification on the calculation of PD and LGD in the edit grid. I noticed that the expected rate of return of assets is used instead of the risk free rate.While on the other hand, i have observed in the subsequent spreadsheet on the calculation of the value of equity and debt using the Merton model, the risk free rate is used. Could you explain the rationale?
i have observed the same under the de servigny reading Chapter 3 on Default Risk-Quantitative Methodology
Thanks a lot
Regards
Peggy