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Probability of default
 | This article may be too technical for most readers to understand. (November 2013) |
| Basel Framework International regulatory standards for banks |
|---|
| Background |
| Pillar 1: Regulatory capital |
| Pillar 2: Supervisory review |
| Pillar 3: Market disclosure |
| Business and Economics Portal |
Probability of default (PD) is a financial term describing the likelihood of a default over a particular time horizon. It provides an estimate of the likelihood that a borrower will be unable to meet its debt obligations.[1][2]
PD is used in a variety of credit analyses and risk management frameworks. Under Basel II, it is a key parameter used in the calculation of economic capital or regulatory capital for a banking institution.
PD is closely linked to the expected loss, which is defined as the product of the PD, the loss given default (LGD) and the exposure at default (EAD).
- ^ "Bankopedia:PD Definition". Archived from the original on 2015-03-20. Retrieved 2012-01-04.
- ^ FT Lexicon:Probability of default
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