# EAD = Drawn amount + Undrawn amount * CCF?

I am pretty sure the following is true $$\text{EAD} = \text{Drawn Amount} + \text{Undrawn Amount} \times CCF$$ where $$\text{CCF}$$ is the credit conversion factor. It means if an overdraft line is drawn to 500 EUR & its limit is 1000 EUR with CCF = 0.5, EAD is 750 EUR.

Unfortunately, I have a really hard time finding a reference for that.

Is there any Basel paper or similar which shows that the equation above holds or possibly an alternative version if my formula is incorrect?

1. EAD = Drawn + a x Undrawn; or
2. EAD = a x Limit.

In both equations, a is called CCF but it is derived/estimated differently depending on which equation you use.

You can refer to the paper "EAD Estimates for Facilities with Explicit Limit" by Moral.

• Thanks @nyk. To conclude, there is no industry standard and both can be possible. Oct 19, 2020 at 13:22
• @PalimPalim Theoretically there is no difference between the 2 equations. In practice, corporate/commercial product guys would prefer your version since undrawn, which could be referred to as "headroom", is explicitly included in the equation.
– nyk
Oct 20, 2020 at 0:12
• but using my example numbers first equation: 500 + 500 * 0.5 = 750 and 2nd equation 1000 * 0.5 = 500. What am I missing here? and here are ccfs bis.org/bcbs/publ/d424_hlsummary.pdf so which equation shall I use here? Oct 20, 2020 at 11:09
• As mentioned, in both equations, the "parameters" are called CCF but they are derived/estimated differently. Probably the example you chose confused you. If you look carefully, the CCF in your example is a percentage/fraction of undrawn, which turns out to be [fortunately/unfortunately] 50%. When you applied this value of CCF in the second equation of course it won't work.
– nyk
Oct 22, 2020 at 0:33
• Thanks @nyk. The paper states that the first version here, 2nd version in the paper is the one applied by Basel and hence the one which is relevant for me. Oct 23, 2020 at 7:20