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Unexpected loss (UL) represents the standard deviation of losses, and expected loss (EL) represents the...

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Finance

  1. Unexpected loss (UL) represents the standard deviation of losses, and expected loss (EL) represents the average losses over the same time horizon. Further define LR as loss rate and PD as probability of default. Which of the following statements are true?
  1. EL increases linearly with increasing PD.
  2. EL is often higher than UL.
  3. Higher uncertainty of PD leads to higher UL.
  4. The lower the LR, the higher the percentage loss for both the EL and UL.
  1. i only
  2. i and ii
  3. i and iii
  4. ii and iv

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