Potential Future Exposure add-ons

Whilst the largest financial institutions have implemented sophisticated risk engines to calculate the PFE of their derivative portfolios, many institutions do not have the volumes, complexity of derivatives nor the resources, to justify such an approach. For them, "mark to market plus add on" continues to be the most appropriate methodology. Maintaining add-ons can still be an onerous task: they need to be regularly updated, need to adapt to business changes and take account of developments in modelling techniques.

Outsourcing your add-ons calculations to InteDelta relieves you of this burden, and gives you the comfort of knowing that your add-ons are calculated using the technology, models and data used by the largest financial institutions.

Our service

In the first instance, we will work with you to design a structure of add-ons appropriate to your business and which can be supported by your risk systems. This may be as simple as replicating the structure you currently have in place. Or we can advise you on a more appropriate structure for your add-ons. Clients are able to specify a number of quantitative parameters, such as the confidence level and choices of methodologies, used in the add-on calculation. Alternatively, you can accept InteDelta’s standard policy for these parameters.

Once the add-on structure and policy have been agreed, we will supply updated add-ons at the agreed frequency, usually quarterly or six-monthly. We provide a commentary which explains the changes in the add-ons from one period to the next, and this can be provided to your internal body that needs to approve the add-ons. Our add-ons cover the full range of products and underlyings: FX, interest rate, credit, equity and commodity. However, you only pay for what you need. As your business develops, new products and underlyings can be easily added. 

Where an organisation enters into more complex or structured transactions for which standardised PFE add-ons are not appropriate, clients may also wish to consider our outsourced transactional analysis service.

In addition to PFE add-ons, we can also provide Expected Positive Exposure (“EPE”) add-ons for incorporation into expected loss and economic capital calculations.