FRM Part II · FRM Exam Part II · Credit Value Adjustment
A bank has a single uncollateralised swap with a counterparty. Simulated mark-to-market values at a future date across four equally likely scenarios are +12 million, +4 million, -6 million and -10 million. What is the expected exposure at that date?
Expected exposure is 4.0 million. Exposure counts only positive mark-to-market values, so the scenarios give 12, 4, 0 and 0, which sum to 16 million and average 4 million across four equally likely scenarios.
- A-0.0 million (zero)
- B4.0 millionCorrect
- C8.0 million
- D16.0 million
Explanation
Exposure is the positive part of value: max(V,0). Values: 12, 4, 0, 0. Average = 16/4 = 4.0 million. Using the plain mean of values gives 0, which ignores that negative values do not create exposure; 8 averages only positive scenarios, the wrong base.
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