|
Usually a measure of credit risk. Although maximum possible losses are sometimes brought up in discussions of capital at risk, the predominant approach is to measure capital at risk as a function of the probability distribution of economic loss. The probability distribution of economic loss is, in turn, a function of the distributions and correlations of potential replacement cost, default and recovery. What may be described as the worst case scenario is usually a 95 or 90 percentile case, not the worst outcome imaginable. See also Value At Risk (VAR) (diagram), Worst Case.
|
For a thorough discussion of capital for credit risk, please read "Key Risk Concepts: Credit Risk"
|
|
