Which credit risk concept refers to the loss an organization incurs over and above its average expected loss, including the variation and possibility of large losses?

Unexpected Loss is defined as the loss that an organization incurs over and above the average loss expected from an exposure. It represents the variation in Expected Loss and captures the possibility of large losses. Expected Loss : The average loss that the organization expects from exposure over a fixed time period, usually a year
• Unexpected Loss : The loss that the organization incurs over and above the average loss expected from exposure over a certain time period, usually a year. It is also known as the variation in Expected Loss and includes the possibility of large losses There are 3 integral components (known as risk components) that are required to be estimated for credit risk quantification.

• Probability of Default (PD) : It refers to the probability/risk/chance of a borrower defaulting on the payment of the credit obligations, within a given time horizon, usually one year.
• Loss Given Default (LGD) : It refers to the loss likely to be suffered in the event of a default occurring in an exposure. It takes into account the number of recoveries likely to be made post default
• Exposure at Default (EAD) : It refers to the amount that is exposed to the default risk. It is usually the amount outstanding as well as undrawn commitment that is expected to be drawn by the time of default.