Consider the Vasicek limiting distribution for losses of a loans portfolio. Now, consider a real portfolio, made of 10 loans each with a different rating class; eg:
- LN#1 - rating A+
- LN#2 - rating BB
The PD to be used in the formula is the simple average of the PDs of the individual loans? What should I consider as "PD" if I took a PD term structure for each rating class?