Can I read Counterparty Trading Limits Revisited:CSAs, IM, SwapAgent(r), from PFE to PFL on EtoBox?

Counterparty Trading Limits Revisited:CSAs, IM, SwapAgent(r), from PFE to PFL by Kenyon, Chris; Berrahoui, Mourad; Poncet, Benjamin is a scholarly article available to read on EtoBox.

What is Counterparty Trading Limits Revisited:CSAs, IM, SwapAgent(r), from PFE to PFL about?

The utility of Potential Future Exposure (PFE) for counterparty trading limits is being challenged by new market developments, notably widespread regulatory Initial Margin (using 99% 10-day exposure), and netting of trade and collateral flows. However PFE has pre-existing challenges w.r.t. portfolios/distributions, collateralization, netting set seniority, and overlaps with CVA. We introduce Potential Future Loss (PFL) which combines expected shortfall (ES) and loss given default (LGD) as a replacement for PFE. With two additional variants Adjusted PFL (aPFL) and Protected Adjusted PFL (paPFL) these deal with both new and pre-existing challenges. We provide a theoretical background and numerical examples.

Author

Kenyon, Chris; Berrahoui, Mourad; Poncet, Benjamin

Published

2017

Language

EN