I have a problem in which I have been given data for two periods over a set of customers.
Each set consists of the fields: ID, rating, PD, LGD, Exposure (on- and off-balance sheet exposures), EAD, RWA, Required Capital, Expected Loss (EL= EADxPDxLGD).
PD = Probability of Default
LGD = Loss Given Default
EAD = Exposure at Default
RWA = Risk weighted assets
EL = Expected Loss
I am not really sure how to identify scope of risk migration between the two periods given some data. In fact I dont have information about if these periods are consecutive or which years they cover (maybe it doesnt matter too much).
How is capital consumption related to expected loss?