In the credit risk management of a derivatives portfolio when one takes into account economic losses only due to counterparty defaults, then it looks like that one can calculate the EPE (Expected Positive Exposure) with each counterparty in the portfolio and then use the approximation that the EPE could be transformed into an LEE (Loan Equivalent Exposure) for an equivalent loan portfolio, LEE = alpha * EPE. This way the problem of Economic Capital calculation for the derivatives portfolio can be transformed into the Economic Capital calculation for a loan portfolio with loan exposures of alpha*EPE for each counterparty. This is what some experts found for us, and what Basel Committee is adopting.I would like to get a quick understanding of what to do if one were to take into account both the possibility of the defaults and the credit migrations (i.e., economic losses due to credit spread changes, upgrades/downgrades, etc.). Could one simply take the LEE found from alpha*EPE for each counterparty and insert into the Economic Capital calculations that take into account both the defaults and credit migrations? Is alpha the same, say 1.2 or 1.4 ? Could anyone recommend a reading/reference on this issue?Many thanks.Mehmet