medium · FRM Part 1 Valuation and Risk Models
If the Loss Given Default (LGD) is treated as a fixed constant, what is the primary driver of Unexpected Loss (UL) for a single exposure?
- The historical volatility of the risk-free market rate itself
- The stated average contractual tenure of the loan
- The standard deviation of the default event (Bernoulli variable)
- The bank's internal marginal cost of funding for this particular facility
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