FRM Part II · FRM Exam Part II · Future Value and Exposure
A bank computes the expected exposure (EE) profile for a netted portfolio at four equally spaced dates covering one year: 4, 10, 8 and 6 (in USD million). Using a simple average of these time points, what is the expected positive exposure (EPE)?
EPE is 7.0 million USD. Expected positive exposure is the time-weighted average of the expected exposure profile, so with equal spacing the four values 4, 10, 8 and 6 sum to 28 and divide by 4. The 10 figure is merely the peak EE.
- A6.0
- B7.0Correct
- C8.0
- D10.0
Explanation
EPE is the time-average of EE. Sum = 4+10+8+6 = 28; divided by 4 = 7.0. Choosing 10 confuses EPE with the peak EE.
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