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Loss Given Default (LGD) Calculator

Calculate the Loss Given Default (LGD) percentage for credit risk management.

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Calculation Parameters

Specify your inputs below.

Calculated Result

Estimated Credit Loss Value $60,000.00
Loss Given Default (LGD) (%) 40.00%
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Expert Tip

LGD is a core risk parameter used in Basel banking rules alongside Probability of Default (PD).

How this Calculator Works

This calculator computes Loss Given Default (LGD), representing the percentage of a loan balance that a lender loses when a borrower defaults. It accounts for collateral recovery values and collections costs. Financial risk managers use it to estimate expected credit losses.

Formula & Methodology

LGD (%) = [ 1 - (Recovery Value / Exposure at Default) ] * 100 - Recovery Value is the cash recovered from selling collateral minus administration and collection costs. - Exposure at Default (EAD) is the total outstanding loan balance at default.

Step-by-Step Calculation Example

Here is a step-by-step example showing how the calculations are performed:

A borrower defaults on a loan of $100,000 (EAD). The bank liquidates the collateral for $70,000, incurring $5,000 in liquidation fees (Net Recovery = $65,000). 1. Calculate recovery ratio: $65,000 / $100,000 = 0.65. 2. Calculate LGD ratio: 1 - 0.65 = 0.35. 3. Convert to percentage: 0.35 * 100 = 35%. Result: The Loss Given Default (LGD) rate is 35.00%.

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Detailed Insights & Expert Guide

ℹ️ About this Calculation

This fixed income and debt investment calculator analyzes bond pricing, coupon yield to maturity (YTM), Macaulay/modified duration, credit risk spreads, and debt coverage ratios based on Wall Street fixed income analytics.

Variable Glossary

Input

Fixed Income Data

Par value ($1,000), coupon rate %, payment frequency, maturity years, corporate credit spread, or tax rate %.

Parameter

Bond Performance

Yield to Maturity (YTM %), present bond price ($), modified duration (years), or Tax-Equivalent Yield (TEY).

How to Calculate Step-by-Step

1

Step 1

Input bond face value, annual coupon interest rate, or corporate credit default swap (CDS) basis points.

2

Step 2

Select payment schedule frequency (annual, semi-annual) and years remaining until maturity date.

3

Step 3

Review calculated yield to call/maturity, interest rate sensitivity duration, or debt service coverage (DSCR).

FAQ

How does bond duration measure interest rate risk?
Modified duration estimates the approximate percentage change in a bond's price for a 1% (100 bps) shift in interest rates. Higher duration indicates greater price sensitivity to rate moves.
What is Tax-Equivalent Yield (TEY) for municipal bonds?
Tax-Equivalent Yield = Municipal Tax-Exempt Yield / (1 - Marginal Tax Rate). It shows the pre-tax yield a taxable bond would need to equal the after-tax yield of a tax-free municipal bond.
Can fixed income calculators guarantee bond trading outcomes?
No. Bond pricing models assume clean compounding yields and fixed reinvestment rates. Secondary market prices fluctuate based on liquidity, credit rating revisions, and market interest rate movements.