The following definitions are complementing the definitions provided at the beginning of the MMG. The probability of default of a borrower or of a facility is noted “PD”. The loss proportion of exposure arising after default, or “loss given default” is noted “LGD”.
3.2.2
A point-in-time assessment (“PIT”) refers to the value of a metric (typically PD or LGD) that incorporates the current economic conditions. This contrasts with a through-the-cycle assessment (“TTC”) that refers to the value of the same metric across a period covering one or several economic cycles.
3.2.3
A PD is associated with a specific time horizon, which means that the probability of default is computed over a given period. A 1-year PD refers to the PD over a one year period, starting today or at any point in the future. A PD Term Structure refers to a cumulative PD over several years (generally starting at the portfolio estimation date). This contrasts with a marginal forward 1-year PD, which refers to a PD starting at some point in the future and covering a one year period, provided that the obligor has survived until that point.
3.2.4
A rating transition matrix is a square matrix that gives the probabilities to migrate from a rating to another rating. This probability is expressed over a specific time horizon, typically one year, in which case we refer to a ‘one-year transition matrix’. Transitions can also be expressed over several years.