What is marginal default probability in SAP FS-BA-PM-CR - Credit Risk?

SAP Term: marginal default probability

• Component: FS-BA-PM-CR

• Component Name: Credit Risk

• Description: When a horizon is used that extends across more than one period, the marginal default probability describes the conditional default probability for the default of the constituents of the portfolio within a particular period of the horizon. The marginal default probability and the exposure profile are both required for constructing the distribution of the default for the constituents of the portfolio hierarchy.

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• Key Concepts: 
  Marginal Default Probability (MDP) is a term used in Credit Risk Management (CRM) within the Financial Services (FS) Business Application (BA) Platform (PM). It is a measure of the probability that a customer will default on their loan or credit agreement. It is calculated by taking into account the customer's creditworthiness, the amount of the loan, and other factors. 
  
  How to use it: 
  MDP can be used to assess the risk associated with a particular loan or credit agreement. It can be used to determine whether or not to approve a loan, and if so, what terms and conditions should be applied. It can also be used to set limits on the amount of credit that can be extended to a customer. 
  
  Tips & Tricks: 
  When calculating MDP, it is important to consider all relevant factors, such as the customer's creditworthiness, the amount of the loan, and any other factors that may affect the likelihood of default. Additionally, it is important to regularly review and update MDP calculations in order to ensure accuracy. 
  
  Related Information: 
  MDP is closely related to Credit Scoring, which is another tool used in CRM. Credit Scoring is used to assess a customer's creditworthiness and determine their likelihood of defaulting on a loan or credit agreement. Additionally, MDP can be used in conjunction with other risk management tools such as Stress Testing and Portfolio Analysis.