Potential Future Exposure
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.
PFE is calculated as follows:
PFE = multiplier * AddOnaggregate
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.
The multiplier input is calculated in accordance with the following formula:
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.