A high-quantile estimate of the exposure to a counterparty at some future date. It is used to set limits.
Where you will meet it
Potential future exposure comes up in 9 learning outcome notes across the FRM syllabus.
A few of them:
Credit Risk Management FRM Part II · Credit risk measurement and management
“Derivative and undrawn exposure changes with markets and so needs a potential future exposure measure.”
Derivatives FRM Part II · Credit risk measurement and management
“Exposure profiles then follow: expected exposure, expected positive exposure as the time average, and potential future exposure as a high percentile.”
Counterparty Risk and Beyond FRM Part II · Credit risk measurement and management
“They cap the potential future exposure at a high confidence level for a counterparty.”
Counterparty Risk and Beyond FRM Part II · Credit risk measurement and management
“Counterparty risk is measured with exposure metrics such as expected positive exposure and potential future exposure at a high percentile.”
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