The variability of credit losses around the expected loss, usually the standard deviation or the excess of a high quantile over the mean. Capital is held against it.
Where you will meet it
Unexpected loss comes up in 15 learning outcome notes across the FRM syllabus.
A few of them:
The Building Blocks of Risk Management FRM Part I · Foundations of risk management
“Unexpected loss (UL) is the variability of loss around that average.”
Measuring Credit Risk FRM Part I · Valuation and risk models
“Unexpected loss is the potential loss beyond what is expected: the amount by which the loss at a chosen high confidence level, such as the 99.9th percentile over one year, exceeds expected loss.”
Fundamentals of Credit Risk FRM Part II · Credit risk measurement and management
“Lending margins and credit spreads compensate for expected loss, for the cost of capital held against unexpected loss, and for operating costs.”
Integrated Risk Management FRM Part II · Operational risk and resilience
GARP does not endorse, promote, review, or warrant the accuracy of the products or services offered by Charta Learning, nor does it endorse any pass rates claimed by Charta Learning. Further, GARP is not responsible for any fees or costs paid by the user to Charta Learning. FRM® and GARP® are registered trademarks owned by the Global Association of Risk Professionals, Inc. The questions, explanations and study notes are written for this product and are not GARP curriculum material.