Calculation of Total Credit Risk Capital % but seeing lower capital percentage for higher risk band. Is there any correction required?
user3762120
I am trying to calculate the Total Credit Risk capital % for my learning purpose as given below. Assuming adding 1 single loan with different pds. i have noticed one point in the table and have two queries. Point 1: As PD increasing, the highly risky bands gets lower credit risk capital %. Question1: Is there any rational behind this?, why we need to keep lower capital for risky bands? Question2: The calculated credit risk capital % contains both EL+UL or just UL. I mean credit VAR(EL+UL) or Jus