Expected Loss

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.

$$//<![CDATA[ \begin{array}{l}\displaystyle \text{Expected loss} = \text{Prob. of default} \times \text{Loss given default}\end{array} //]]>$$