I am trying to calculate Loss Given Default including both collateral and recovery rate but I haven't found a formula yet to incorporate both.
formulas I've come across:
- LGD (as percentage) = 1 - (Potential Sale Proceeds / Outstanding Debt)
- LGD (in dollars) = Exposure at Risk (EAD) * (1 - Recovery Rate)
My initial thought would be to factor RR into Potential Sale Proceeds such as:
LGD (as percentage) = 1 - (Potential Sale Proceeds * Recovery Rate/ Outstanding Debt)
Is there a standard way to achieve this? If not what is the best way to combine these two in practice.
