Misys: How to Calculate Potential Future Exposure

The use of practices like portfolio aggregation, collateral and netting clearly demonstrates the ongoing importance to banks of accurate exposure measurement in calculating their counterparty credit risk.

For OTC derivatives, this quantification is also known as potential future exposure (PFE). PFE quantifies the counterparty risk/credit risk by evaluating trades already done against possible market prices in the future, over the lifetime of the transactions. PFE is also a building block for

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