Definitions

Risk parameters

One or all of the following: PD, LGD, ELBE and LGD in-default

Reference data set (RDS)

All the datasets used for the purpose of estimation of risk parameters, including the datasets relevant for model development as well as the datasets used for calibration of a risk parameter.

PD model

All data and methods used as part of a rating system within the meaning of Article 142(1) point (1) of Regulation (EU) No 575/2013, which relate to the differentiation and quantification of own estimates of PD and which are used to assess the default risk for each obligor or exposure covered by that model.

Ranking method of a PD model

The method, forming part of a PD model, used to rank the obligors or exposures with respect to the risk of a default.

Scoring method of a PD model

A ranking method of a PD model which assigns ordinal values (’scores’) to rank obligors or exposures.

LGD model

All data and methods used as part of a rating system within the meaning of Article 142(1) point (1) of Regulation (EU) No 575/2013, which relate to the differentiation and quantification of own estimates of LGD, LGD in-default and ELBE and which are used to assess the level of loss in the case of default for each facility covered by that model.

ELBE

Expected loss best estimate for defaulted exposures as referred to in Article 181(1)(h) of Regulation (EU) No 575/2013.

LGD in-default

Loss given default for defaulted exposures as referred to in Article 181(1)(h) of Regulation (EU) No 575/2013.

Scope of application of a PD or LGD model

The type of exposures in the meaning of point (2) of Article 142(1) of Regulation (EU) No 575/2013 covered by a PD model or an LGD model.

Estimation of risk parameters

The full modelling process related to the risk parameters including the selection and preparation of data, model development and calibration.

Model development

The part of the process of the estimation of risk parameters that leads to an appropriate risk differentiation by specifying relevant risk drivers, building statistical or mechanical methods to assign exposures to obligor or facility grades or pools, and estimating intermediate parameters of the model, where relevant.

PD calibration sample

The data set on which the ranking or pooling method is applied in order to perform the calibration.

Calibration segment

A uniquely identified subset of the scope of application of the PD or LGD model which is jointly calibrated.

PD calibration

The part of the process of the estimation of risk parameters which leads to appropriate risk quantification by ensuring that when the PD ranking or pooling method is applied to a calibration sample, the resulting PD estimates correspond to the long-run average default rate at the level relevant for the applied method.

LGD calibration

The part of the process of the estimation of risk parameters which leads to appropriate risk quantification by ensuring that the LGD estimates correspond to the long-run average LGD, or to the downturn LGD estimate where this is more conservative, at the level relevant for the applied method.

Application of risk parameters

The assignment of risk parameters estimated in accordance with the PD or LGD model to the current exposures, performed either automatically with the use of a relevant IT system or manually by qualified personnel of an institution.

Application portfolio

The actual portfolio of exposures within the scope of application of the PD or LGD model at the time of the estimation of a risk parameter.