Counterparty trading limits revisited: from PFE to PFL

The potential future loss is proposed as a replacement for PFE

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The potential future exposure (PFE) for counterparty trading limits is challenged by new market developments, notably widespread regulatory initial margin, and netting of trade and collateral flows. However, Chris Kenyon, Mourad Berrahoui and Benjamin Poncet believe PFE already has many issues, such as comparability across counterparties. The authors introduce potential future loss (PFL), which combines expected shortfall

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