LGD (Loss Given Default) performing model is developed on through the cycle sample which consists of loans in default.

What I want is to compare LGD estimate and LGD observed (realized). LGD observed is workout LGD calculated on all defaulters from last (for example) three years. What is LGD estimate?

I think that it is not good to calculate LGD estimate on 'point in time' performing sample and to compare it with LGD observed since LGD estimate is calculated on point in time performing sample and LGD observed (realized) is calculated on through the cycle sample which consists of only defaulted loans.

One of my ideas which is more complicated than those matched above (but I do not know if it is OK) is to use performing sample (and calculated LGD estimate on it) and to calculated LGD observed on all loans/clients who enters into default in period of 1 year.

How do you do it? Or what do you think about comparison of LGD estimate and LGD observed in validation of LGD performing model.

I will be very thankful for any suggestions. Also, if you have some articles or books which can resolve my problem, please send to me.

Also, I find a lot of articles where it is necessary to compare LGD estimate and LGD observed pa I can not find on which sample LGD estimate is calculated.


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