Credit Risk - TD, LGD, EAD

Overview

The Td, Lgd, Ead model is a variant of the pd, lgd, ead model. The only difference is that instead of modeling the probability of default for a specified period, the model models the time to default. (that is, how much time between the current time and when the loan defaults)

The two models are virtually identical, in two ways:

• The pd,lgd, ead model typically needs to model time to default in order to compute the ead correctly
• The probability of default can be computed from time to default. That is, the probability of default over the next period (say a year) is just the probability that the time to default is less than a year.