Default risk as stated by sir is similar to probability given default. In High Quality bond with a large amount of publicly traded debt i.e. high liquidity has less default and credit risk. So we will focus more on the probability given default rather than loss severity. We focus on loss severity in case of junk or High yield or speculative bonds since the probability of default is almost certain, we just have to know to loss severity.
Hi,
Default risk as stated by sir is similar to probability given default. In High Quality bond with a large amount of publicly traded debt i.e. high liquidity has less default and credit risk. So we will focus more on the probability given default rather than loss severity. We focus on loss severity in case of junk or High yield or speculative bonds since the probability of default is almost certain, we just have to know to loss severity.
Hope this helps!