The key element of calculating the correct PFE for a counterparty lies in the underlying contractual netting rules. energycredit Analytics incorporates the netting rules and regulations that have been applied in energycredit to all calculations. Potential Future Exposure is aggregated according to the rules instilled in energycredit. energycredit Analytics will also allow a user see the effects of installing new netting arrangements by assuming additional netting clauses.

energycredit Analytics is highly optimised to provide a comprehensive counterparty valuation based on cutting edge technology. It is fully scalable to run on multiple processors across an organisation’s network. With reasonable hardware configuration, PFE can be generated overnight for a portfolio of counterparties. Risk managers can have the latest PFE profile at their finger tips for any counterparty, at any netting level. The PFE reports are web-based and can be accessed from anywhere, anytime.

energycredit Analytics is also highly user configurable. Users can set the number of simulations, evaluation dates and frequency, confidence level, position roll-off period, and many other control parameters.

energycredit Analytics consists of five parts: scenario generator, deal valuator, netting aggregator, pre-deal checker, and PFE web reports. The five parts work together to provide the full benefit of PFE measurements.

energycredit Analytics supports fully user-configurable future price scenario generation. The user can choose to generate price, interest rate, and currency exchange rate scenarios using user-defined Monte Carlo simulations based on historical data, price patterns and trends. Users can specify parameters such as correlation coefficients and volatility for the models. Users can also apply uniform price shifts and customised price shifts (in order to meet the S&P liquidity adequacy test). The user also has the option to bypass the scenario generator altogether and, instead, use their own scenarios generated through their own simulations. energycredit Analytics provides a user-friendly interface to integrate the client generated price scenarios with our deal types.

This is where all counterparty trade positions are valued using future prices for Mark-to-Market (MTM) and future interest rates for discounting. Future exchange rate scenarios are also employed to account for trades done in non-base currencies. energycredit Analytics handles conventional deals such as forward physicals and financial swaps. It also handles physical and financial options using the Black-Scholes model and taking into account exercisability based on future market conditions. Structured trades are valued based on components and time shifted to ensure correct pricing.

The deal valuator combines transactions with similar attributes (positions with similar time periods, same price curves, and netting agreement) into a single position, therefore minimising the calculation time.

energycredit Analytics provides a rich set of user friendly PFE reports that are easy to navigate and understand. At the top level, the PFE summary report displays PFE by counterparties over future time buckets. The PFE values are displayed alongside counterparty limits and availabilities. The summary report is hyperlinked to the detailed PFE report for a single counterparty, where the party’s PFE is divided into potential mark-to-market (the effect of price difference between current and future times), current mark-to-market (exposure resulted from difference between contract price and current price), and current and future accounts receivable. These components are clearly graphed with the overall PFE, giving users a real understanding of the risk factors. There is also a top ten PFE report for stress scenarios, where the highest PFE counterparties are listed under each user controlled stress condition.

In summary, energycredit Analytics measures PFE using Monte Carlo generated future market scenarios. It handles a full spectrum of deal types, from physical delivery deals to more complex structured deals. Current deal sets and netting agreements are used in the PFE calculation so that the risk managers can have the most complete and updated picture of the credit risk their organisation is undertaking.