Variance of the loss distribution of type 1 exposures

1. The variance of the loss distribution of type 1 exposures as referred to in paragraph 4 of Article 200 shall be equal to the sum of V inter and V intra.

2. V inter shall be equal to the following:

V inter= sum (j,k) (PD k*(1-PD k)*PD j*(1-PD j)/(1,25*(PD k+PD j)-PD k*PD j) *TLGD j* TLGD k

where:

(a) the sum covers all possible combinations (j,k) of different probabilities of default on single name exposures in accordance with Article 199;

(b) TLGD j and TLGD k denote the sum of losses -given- default on type 1 exposures from counterparties bearing a probability of default PD j and PD k respectively.

3. V intra shall be equal to the following:

V intra= sum j 1,5*PD j*(1-PD j)/2,5-PD j *sum PD j (LGD^2 i)

where:

(a) the first sum covers all different probabilities of default on single name exposures in accordance with Article 199;

(b) the second sum covers all single name exposures that have a probability of default equal to PD j;

(c) LGD i denotes the loss-given-default on the single name exposure i.