FRM Part II · FRM Exam Part II · Credit Value Adjustment
A risk analyst simulates the future value of a portfolio with one counterparty and produces the following expected positive exposures at three equally spaced dates: 1 year EE = USD 6 million, 2 years EE = USD 10 million, 3 years EE = USD 8 million. Over a 3-year horizon, assuming exposure at time zero is ignored and the profile is approximated by the simple average of the three dates, what is the expected exposure (EE-based) average?
The average expected exposure is USD 8 million, computed as (6 + 10 + 8) divided by 3. The sum of USD 24 million is not an average, and USD 10 million is the peak of the profile, which is a different metric.
- AUSD 8 millionCorrect
- BUSD 10 million
- CUSD 6 million
- DUSD 24 million
Explanation
Average = (6 + 10 + 8)/3 = 24/3 = 8 million. Using the maximum (10) gives peak, not average; 24 is the sum, not an average.
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