Before revision: This paper investigates the impact of parameter uncertainty on capital estimate in the well-known extended Loss Given Default (LGD) model with systematic dependence between default and recovery .
After revision: It is a well known fact that recovery rates tend to go down when the number of defaults goes up in economic downturns. We demonstrate how the loss given default model with the well-known extended Loss Given Default (LGD) model with systematic dependence between default and recovery .