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Dear David,

Can I check with you if Ong's unexpected loss (Unexpected loss (UL) = SQRT[(EDF)(variance of LGD) + (LGD^2)(variance of EDF)]*(Adjusted exposure) ) can be traced back to the formula for calculating the variance of the product of two independent variables (V(x*y) = E(x)2V(y) + E(y)2V(x) + V(x)V(y) ). However, the last item "V(x)V(y)" seems to be missing in the UL formula.

Thanks!

Liming

4/11/09

Can I check with you if Ong's unexpected loss (Unexpected loss (UL) = SQRT[(EDF)(variance of LGD) + (LGD^2)(variance of EDF)]*(Adjusted exposure) ) can be traced back to the formula for calculating the variance of the product of two independent variables (V(x*y) = E(x)2V(y) + E(y)2V(x) + V(x)V(y) ). However, the last item "V(x)V(y)" seems to be missing in the UL formula.

Thanks!

Liming

4/11/09

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