The expected loss is the probability of default (PD0) times the amount of debt forgone (i.e., loss given default) in debt restructuring. We notice that the loss still would be incurred even if the debt could be restructured in every possible scenario.

\text{Expected loss} = \text{Prob. of default} \times \text{Loss given default}

Technical note

Both of the PDs are capped by MAXIMUM_PD and floored by MINIMUM_PD due to the discretized CFADS scenarios, as described in the appendix.

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