It is not a “type” thing, it is the standard deviation computed directly from the distribution.
The signature of the function is:
Vasicek Base Distribution Unexpected Loss:
- param N: The number of entities in the portfolio
- param p: The probability of default (of each entity in the portfolio, assumed homogeneous in the Vasicek model)
- param rho: The asset correlation (not needed here)
When you insert quantile figures such 0.99 or 0.95 in this function you are not using it correctly as it does not produce a distribution, it only produces a statistical moment of a distribution.
If you want to obtain an estimate of stressed defaults based on standard deviation you would do it something like this:
SD = EL + a * UL
where SD is stressed number of defaults, EL is the expected number of defaults and UL is the standard deviation of default and a is the number of standard deviations (2, 3 etc).
This approach used to be called the “poor man’s economic capital”. Namely it is an easy way to get an estimate of “tail losses” (losses that will only happen in a more stresseful scenario) by estimating average and standard deviation of losses over a historical period. The choice of a is by convention (and by analogy with the quantiles of the normal distribution) but it does not imply we assume a normal.