Compute EL and RWA from loan data

Q: Compute EL and RWA from loan data

This is a Machine Learning interview question from Citibank for Data Scientist roles. View the full question and solution on PracHub.

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Question

Task: Compute Portfolio EL and RWA from Loan-Level PD, LGD, EAD

Context

You are given an anonymized, loan-level dataset with at least the following fields per exposure:

PD: one-year probability of default (as a decimal, e.g., 0.01 for 1%)
LGD: loss given default under downturn conditions (decimal between 0 and 1)
EAD: exposure at default (currency units). For off-balance-sheet items, EAD should reflect credit conversion factors (CCFs), or you must compute EAD from committed/undrawn amounts and CCFs.

Compute:

Portfolio expected loss (EL)
Risk-weighted assets (RWA)

Also state:

Assumptions (regulatory approach, asset class, maturity, parameter floors)
Formulas used
Aggregation approach across loans
Treatment of off-balance-sheet exposures
Sensitivity and validation checks

Compute EL and RWA from loan data

Task: Compute Portfolio EL and RWA from Loan-Level PD, LGD, EAD

Context

Solution (Locked)

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