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Expected Loss Formula

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Expected Loss represents the anticipated financial loss resulting from a specific risk, calculated as the product of the loss severity, probability of default, and exposure at default. Check FAQs
EL=DP⋅LSD
EL - Expected Loss?DP - Default Probability?LSD - Loss Severity given Default?

Expected Loss Example

With values
With units
Only example

Here is how the Expected Loss equation looks like with Values.

Here is how the Expected Loss equation looks like with Units.

Here is how the Expected Loss equation looks like.

0.04Edit=0.05Edit⋅0.8Edit
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HomeIcon Home » Category Financial » Category Fixed Income Securities » fx Expected Loss

Expected Loss Solution

Follow our step by step solution on how to calculate Expected Loss?

FIRST Step Consider the formula
EL=DP⋅LSD
Next Step Substitute values of Variables
∴ EL=0.05⋅0.8
Next Step Prepare to Evaluate
∴ EL=0.05⋅0.8
LAST Step Evaluate
∴EL=0.04

Expected Loss Formula Elements

Variables
Expected Loss
Expected Loss represents the anticipated financial loss resulting from a specific risk, calculated as the product of the loss severity, probability of default, and exposure at default.
Symbol: EL
Measurement: NAUnit: Unitless
Note: Value should be greater than 0.
Formulas to find Expected LossOpen Variable
Default Probability
Default Probability refers to the likelihood that a borrower or debtor will fail to meet their financial obligations, such as making loan repayments or servicing debt.
Symbol: DP
Measurement: NAUnit: Unitless
Note: Value should be greater than 0.
Formulas to find Default ProbabilityOpen Variable
Loss Severity given Default
Loss Severity given Default refers to the proportion of financial loss incurred if a borrower or debtor defaults on their obligations.
Symbol: LSD
Measurement: NAUnit: Unitless
Note: Value should be greater than 0.
Formulas to find Loss Severity given DefaultOpen Variable

Other formulas in Fixed Income Securities category

​Go Conversion Ratio
CR=PvmCPequity
​Go Conversion Value
CV=P⋅CR
​Go Conversion Premium
CP=CV-MPCB
​Go Floating Interest Rate
FIR=Rref+FS

How to Evaluate Expected Loss?

Expected Loss evaluator uses Expected Loss = Default Probability*Loss Severity given Default to evaluate the Expected Loss, The Expected Loss is the anticipated financial loss resulting from a specific risk event, calculated as the product of loss severity, probability of default, and exposure at default. Expected Loss is denoted by EL symbol.

How to evaluate Expected Loss using this online evaluator? To use this online evaluator for Expected Loss, enter Default Probability (DP) & Loss Severity given Default (LSD) and hit the calculate button.

FAQs on Expected Loss

What is the formula to find Expected Loss?
The formula of Expected Loss is expressed as Expected Loss = Default Probability*Loss Severity given Default. Here is an example- 0.04 = 0.05*0.8.
How to calculate Expected Loss?
With Default Probability (DP) & Loss Severity given Default (LSD) we can find Expected Loss using the formula - Expected Loss = Default Probability*Loss Severity given Default.
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