Credit Exposure Metrics (EFV, EE, PFE) for Interest Rate Swap | FRM Part 2

[@finRGB]

*FRM Learning Objectives* : 1. Describe and calculate the following metrics for credit exposure: expected mark-to-market, expected exposure, potential future exposure, expected positive exposure and negative exposure, effective expected positive exposure, and maximum exposure. 2. Identify factors that affect the calculation of the credit exposure profile and summarize the impact of collateral on exposure. 3. Identify typical credit exposure profiles for various derivative contracts and combination profiles.

[@demoiido7655]

This is the most easy to understand explanation i have ever heard! Thank you so much!

[@finRGB]

Glad you found the video helpful, @demoiido7655.

[@raviraja3801]

What an amazing crystal clear explanation. Highly recommended for students/ professionals entering the Risk Management profile and want to learn how exposure actually varies with time. Thanks again for this wonderful video. 👍

[@finRGB]

Thank you for the appreciation, Ravi.

[@niraj6254]

Thank you very much Sir. You've been a great help !!

[@finRGB]

Glad you found the video helpful, Niraj.

[@Alexander-pk1tu]

awesome video man. Thank you very much

[@abhi5993]

How should we make the initial assumption that term structure is upward sloping or downward sloping?

[@shameelshakir8632]

It is very clear, but may I know what is that C in the EE(t) formula. Is it just any constant or anything. There is no explanation with Constant

[@finRGB]

It's a constant i.e. the portion of the EE expression that is independent of t. If the future value of the swap (at a future time t) were to be assumed to be normally distributed with mean zero and standard deviation sigma*(sqrt(t))*(T-t), this constant will turn out to be sigma / sqrt(2pi).