Hello everyone.Sorry for my question, I'm a beginner. We are going to improve our PFE calculations but we don't have enough technical opportunity for complete PFE calculations because of our system. All we have is the system that can calculate fair value for different products for the set of the accounting periods (read time bands). All I need to do now is to calculate addons for different time bands for different risk factors. I explain what I mean. Consider fx forward, we buy eur, sell usd. We want to calculate a list of addons for USD rate, EUR rate, USD/EUR fx rate for a list of time bands from present time to the maturity of the instrument. We want to simplify PFE calculations and calculate 99% possible shift up and down for each of risk factors. For example, USD/EUR relative down shift = 10%, USD/EUR relative up shift = 12% for k'th time band. It means for us that we will choose the shift that would lead us to the biggest PFE usage (read the biggest MtM) in this time band, for our example it would be a a 10% EUR strengthening.Can you advice me some suitable models for addons calculations?Sorry, I'm understand that it is very exotic task.Thanks in advance for any answer.

Well, my first question would be: what confidence interval do you use to calculate your PFE's? 99%? 97.5%? 95%? 90%? Depending on how you do it, you can calculate very general add-ons by pulling currency (EURUSD, USDGBP, etc) volatility figures from Bloomberg and then use a GBM to calculate your PFE's per time band. In the end, you will only end up with an add-on. Your front office will have to add their MtM on top of that in order for you to have the true PFE if you value the exposure with MtM = 0. The rates at which the currencies are exchanged + tenor + volatility all have a decided impact on the MtM of the deal, so if you're not able to tie that in to your calculation, you will need to correct for it.Otherwise, I would suggest you lay out some money for a true risk system. SunGard offers several very powerful calculation engines for simulations that can be tailored to your end exposure management system.CB