Scenario provision calculator
A single expected-loss number hides the range. This calculator weights base, downturn and severe scenarios by their probability, producing an allowance that reflects the whole distribution rather than one forecast, and shows how much of the tail the weighted figure ignores.
| Scenario | PD | LGD | Loss | Weighted |
|---|---|---|---|---|
| Base | 1.00% | 40% | $20,000 | $12,000 |
| Downturn | 3.00% | 50% | $75,000 | $22,500 |
| Severe | 8.00% | 60% | $240,000 | $24,000 |
Weights are normalised, so they need not sum to exactly 1.
PD × LGD × EAD · Per scenario.
Σ w_i · EL_i · Weights normalised to sum to one.
worst − best · How much the outcome depends on the scenario.
A clear path from inputs to results.
A single expected-loss number hides the range. This calculator weights base, downturn and severe scenarios by their probability, producing an allowance that reflects the whole distribution rather than one forecast, and shows how much of the tail the weighted figure ignores.
How to use
- Enter the exposure.
- For each scenario, set PD, LGD and its probability weight.
- Read the weighted allowance.
- Compare it with the worst case.
The formula
Reference: IFRS 9 / CECL multi-scenario expected credit loss.
Worked example
$5M exposure, three scenarios
- Base: PD 1%, LGD 40%, weight 0.6.
- Downturn: PD 3%, LGD 50%, weight 0.3.
- Severe: PD 8%, LGD 60%, weight 0.1.
- 1
Base loss: 5M × 1% × 40% = $20,000.
- 2
Downturn: $75,000; severe: $240,000.
- 3
Weighted: 20,000×0.6 + 75,000×0.3 + 240,000×0.1 = $58,500.
- 4
The weighted figure is a quarter of the severe case.
Weighted allowance $58,500 · severe case $240,000.
Interpreting the result
The gap between the weighted allowance and the severe case is the tail the accounting number does not cover. That is deliberate — the allowance is a probability-weighted estimate, while capital and stress testing cover the tail. Reading only one of the two numbers is how banks get surprised.
Assumptions & limitations
- Three scenarios with user-supplied probabilities.
- Losses are PD × LGD × EAD within each scenario.
- No discounting or lifetime PD term structure.
- Weights are normalised.
Frequently asked questions
Why weight scenarios?
A single forecast embeds one view of the future; weighting shows the range and its likelihood.
Should weights sum to one?
They are normalised, so they need not, but the ratio between them is what matters.
Does this replace a model?
No. It is a screening calculation; production models use many scenarios and macro overlays.
Methodology last reviewed 2026-10-21. Results are informational and not financial or engineering advice — see our disclaimer.