FRM Glossary · Part II · Credit Risk

Exposure at Default (EAD)

The expected outstanding exposure on a contract at the moment the counterparty defaults — before any recovery.

In more detail

EAD is one of the three inputs to regulatory capital under Basel (PD × LGD × EAD). For term loans it equals the outstanding notional; for revolving credit and derivatives it includes potential future exposure (PFE) modelled by adding a percentage of undrawn commitment or using SA-CCR.