[Verse 1]
Sarah lends ten thousand to a friend named Jake
But Jake's got troubles, his business might break
Default probability haunts every loan
Twenty percent chance she'll face this alone
The risk of not getting her money back home
Credit risk whispers in banker's dark tome
[Chorus]
PD times LGD equals expected loss
Probability, loss given, don't get them crossed
Recovery rate saves the day when things fall apart
Credit risk math is a dangerous art
Default, recover, expected, and loss
These four pillars hold up the boss
[Verse 2]
Jake defaults hard, company goes down
Sarah's ten thousand might not come around
Loss given default is sixty percent
Six thousand vanished, her capital spent
But forty percent could still find its way
Recovery rate brightens her darkest day
[Chorus]
PD times LGD equals expected loss
Probability, loss given, don't get them crossed
Recovery rate saves the day when things fall apart
Credit risk math is a dangerous art
Default, recover, expected, and loss
These four pillars hold up the boss
[Bridge]
Twenty percent times sixty percent makes twelve
Twelve hundred dollars lost from her shelf
Expected loss calculation complete
Before she lends, she must compete
With risk assessment, cold and neat
Making credit decisions bittersweet
[Verse 3]
Banks face millions of Jakes every year
Measuring default probabilities clear
Collateral backing reduces the sting
Recovery processes money can bring
Expected loss guides their pricing game
Credit risk modeling stakes their claim
[Chorus]
PD times LGD equals expected loss
Probability, loss given, don't get them crossed
Recovery rate saves the day when things fall apart
Credit risk math is a dangerous art
Default, recover, expected, and loss
These four pillars hold up the boss
[Outro]
Probability times loss given default
Expected loss reveals every fault
Recovery rates provide the cure
Credit risk never disappears
But math makes uncertainty clear