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Hello guys,

I have a doubt about Recovery impact on CVA as explained in Gregory page 142 : "increasing LGD reduces the risk-neutral default probability but increases the loss in the event of default". If mathematically I can understand it, I have some problem to understand the economic logic behind it, for me intuitively an increase of LGD should lead to an increase of the PD.

Can anyone help me to better understand this logic?

thank you in advance

I have a doubt about Recovery impact on CVA as explained in Gregory page 142 : "increasing LGD reduces the risk-neutral default probability but increases the loss in the event of default". If mathematically I can understand it, I have some problem to understand the economic logic behind it, for me intuitively an increase of LGD should lead to an increase of the PD.

Can anyone help me to better understand this logic?

thank you in advance

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