With commodity and energy prices regaining volatility, most players are struggling to find answers to one of their most critical risk factors – Counterparty Credit Risk. While many, especially in the oil & energy sector, have VaR based tools to measure and manage their Market Risks, few have ventured formally into expanding the scope of Risk Management to Credit Risk.
What is PFE?
Potential future exposure (PFE) is the likely outstanding amount at some future time at which a default event might occur. It can be expressed as a dollar amount or as percentage of book value, current value, or notional value.