• Potential Future Exposure

    • PRU A4.6.25

      The PFE consists of (i) an aggregate add-on component, which consists of add-ons calculated for each asset class and (ii) a multiplier that allows for the recognition of excess collateral or negative mark-to-market value for the transactions.

    • PRU A4.6.26

      PFE is calculated as follows:

      PFE = multiplier * AddOnaggregate

      where:

      AddOnaggregate = the aggregate add-on component; and 

      multiplier = a function of three inputs (V, C and AddOnaggregate), calculated in accordance with Rule A4.6.27.

    • PRU A4.6.27

      The multiplier input is calculated in accordance with the following formula:

      PRU_Ver06_A4_6_27.PNG

      where:

      exp(…) = the exponential function;

      Floor = 5%;

      V = the value of the derivative transactions in the netting set; and

      C = the haircut value of the net collateral held, calculated in accordance with Section A4.3.