A Conditional Valuation Approach for Path-Dependent Instruments: Wilmott Magazine Article – Dante Lomibao and Steven Zhu

In an effort to improve credit risk management, financial institutions have developed various measures to manage their exposure to counterparty risk. One important measure of counterparty risk is potential future exposure (PFE), which is a percentile (typically 95 or 99 percent) of the distribution of exposures at any particular future date.

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