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Intro to Credit: Adjusted Exposure

Adjusted Exposure (AE) is a component of credit portfolio expected loss (EL). The adjusted exposure is only the risky portion of the loan asset. It consist of: 1. All outstanding (OS) and 2. Usage given default (UGD) multiplied by commitments. Usage given default (UGD) parameterizes credit optionality: with a commitment, the bank grants a "credit option" to the borrower.
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