All,
In the CFA book pg - 540 it mentions “it is possible that the default risk on a collateralized loan is high while the credit risk is low, especially if the value of the collateral is high relative to the amount that is owed”. Can some one please give an example of this scenario?
How is credit risk different from default risk mathematically?
I may be wrong but I was thinking CR = exposure * loss severity
Thanks in advance