Potential Future Exposure (PFE), subject to bank regulation under Basel III and Dodd Frank, is a measure of counterparty credit risk on the maximum expected credit exposure on a specified date calculated at some level of confidence. CT RISK has elaborated its notably adaptable Expected Exposure Ratio (EER) Simulation to measure the maximum average exposure ratio of a structured product over its entire life cycle.

Traditionally, risk managers have still relied on current exposure measurement (i.e. current mark-to-market exposure plus outstanding receivables) and collateral management, which fails to provide an acceptable indication of credit risk on structured products at some point in the future.  EER Simulation can offer a sophisticated tool for risk management on structured products of heterogeneous product types and help to illustrate the respective expected returns in terms of the specifications of the products to their investors.

EER Simulation on Equity Accumulator - PDF