Potential Future Exposure

Potential Future Exposure


Given the volatility in today’s marketplace, it has become vital for risk managers to measure and understand their Potential Future Exposure (PFE) to a counterparty. PFE measures the counterparty risk by evaluating existing trades with potential future market prices over the lifetime of the existing transactions. This forward looking picture extracts the maximum potential exposure over the lifetime of the existing trades at a given confidence level. The key element of calculating the correct PFE for a counterparty lies in the underlying contractual netting rules. Brady Credit Risk’s Analytics module incorporates the netting rules and regulations that have been applied in Brady Credit Risk to all calculations. PFE is aggregated according to the rules instilled in Brady Credit Risk. The Analytics module will also allow a user see the effects of installing new netting arrangements by assuming additional netting clauses.

The Analytics module is highly optimised to run on mulitple processes providing a comprehensive counterparty valuation based on the latest technology. It is fully scalable to run on multiple processors across an organisation’s network. PFE can be generated overnight for a portfolio of counterparties. Risk managers can have the latest PFE profile at their finger tips for any counterparty, at any netting level. The PFE reports are web-based and can be accessed from anywhere, anytime.

The Analytics module is also highly user configurable. Users can set the number of simulations, evaluation dates and frequency, confidence level, position roll-off period, and many other control parameters.

The Analytics module consists of five parts: scenario generator, deal valuator, netting aggregator, pre-deal checker, and PFE web reports. The five parts work together to provide the full benefit of PFE measurements.

 

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