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Unresolved Defaults LGD Study 2020
This report describes the Global Credit Data (GCD) methodology for calculating loss given defaults (LGDs) for unresolved loans. The methodology benefits from GCD’s detailed and granular collection of post-default cash flow data and is based on extrapolations of historical recovery cash flows refined by the usage of risk drivers.
The methodology provides a straightforward, data-driven way of incorporating incomplete workout processes in the estimation of longrun average LGDs. Extensive validation both in- and out-of-sample has shown that the method works well in predicting LGDs for unresolved defaults.