Skip to content

FRM Part II · FRM Exam Part II · Future Value and Exposure

A risk analyst simulates 10,000 paths for a netting set's value at a single future date. After sorting the exposures (positive part of value) from lowest to highest, the 9,500th value is 12.4 million and the 9,501st is 12.6 million. Which statement best describes the estimate of the 95% PFE at that date?

The 95% PFE is the 95th percentile of simulated exposures, which lies between the 9,500th and 9,501st sorted values, so about 12.5 million. It is not the maximum or a tail average, and it is not the mean, which would be expected exposure.

  1. AIt is approximately 12.5 million, around the 95th percentile of the simulated exposure distributionCorrect
  2. BIt is the average of all exposures, around 6 million
  3. CIt is the largest simulated exposure, as PFE is a maximum
  4. DIt is the average of exposures above the 95th percentile, which is at least 12.6 million

Explanation

PFE at 95% is the 95th percentile of the exposure distribution; with 10,000 paths this lies between the 9,500th and 9,501st observations, about 12.5 million. The average of tail values would be expected shortfall-type, not PFE, and the mean is EE.

Did you get it right without looking?

One question tells you little. A timed set on Future Value and Exposure shows your real accuracy, how long you take and where you lose marks.

Practise Future Value and ExposureFree diagnostic mock

More Future Value and Exposure questions