Measuring Potential Future Exposure (PFE)
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. energycredit Analytics incorporates the netting rules and regulations that have been applied in energycredit to all calculations. Potential Future Exposure is aggregated according to the rules instilled in energycredit. energycredit Analytics will also allow a user see the effects of installing new netting arrangements by assuming additional netting clauses.
energycredit Analytics is highly optimised to provide a comprehensive counterparty valuation based on cutting edge technology. It is fully scalable to run on multiple processors across an organisation’s network. With reasonable hardware configuration, 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.
energycredit Analytics 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.
energycredit Analytics 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.