Probability of default
An estimate that an issuer will fail to meet its obligations within a stated period.
Formula
Expected loss is the product of probability of default, the share not recovered in default and the exposure at default. The figure applies to a group of similar borrowers, not to one name.
How to read the number
The number means something only together with a horizon: probability over one year and over five are different quantities for the same issuer.
When the metric lies
Also known as: pd, default probability