What is PSE in risk?
Pre-settlement risk is the possibility that one party in a contract will fail to meet its obligations under that contract, resulting in default before the settlement date. This default by one party would prematurely end the contract and leave the other party to experience loss if they are not insured in some way.
What is cer exposure?
Counterparty credit exposure is a measure of the amount that would be lost in the event that a counterparty to a financial contract defaults. In a plain vanilla interest rate swap, the counterparties agree to exchange a payment based on a fixed rate for a payment based on a floating rate.
What is EPE in Basel?
50.30. Expected positive exposure (EPE) is the weighted average over time of expected exposure where the weights are the proportion that an individual expected exposure represents of the entire time interval.
What is effective exposure in derivatives?
The effective exposure of a Portfolio which is achieved through a derivative position reflects the equivalent amount of the underlying security that would provide the same profit or loss as the derivative position, given an incremental change in the price of the underlying security.
What is exposure in credit risk?
What Is Credit Exposure? Credit exposure is a measurement of the maximum potential loss to a lender if the borrower defaults on payment. It is a calculated risk to doing business as a bank.
What is pre-settlement exposure?
The risk that a counterparty will default prior to the financial instrument’s final settlement. This means that the counterparty may suffer loss because the contract is not carried out but at least (unlike settlement risk) the non-defaulting party will not have paid out under the contract.
How is pre-settlement exposure calculated?
This daily volatility has been calculated using the Simple Moving Average (SMA) approach. The other values are calculated as follows: Pre-settlement volatility over the ten day period = 0.50% * sqrt (10) = 1.59% Pre-settlement FX rate impact works out to =1.59%*1.395 =0.022.
What is incurred CVA?
Incurred CVA is an accounting value adjustment that helps to ensure that the asset value and the capital of a firm are appropriately reduced to reflect the expected losses as a result of a counterparty’s credit quality.
What is EPE model?
An EPE model is designed to produce a distribution of possible exposure values at future time horizons for a particular counterparty. This distribution of exposures is currently used to determine the regulatory capital through application of the regulatory capital metric “effective expected positive exposure” (EEPE).