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 TRM, CVA/DVA, Determining Expected Exposures

 

Expected exposures are required for the calculation of CVA and DVA. Whereas expected positive exposures (EPE) are used to calculate CVA, expected negative exposures (ENE) are used to calculate DVA.

Expected exposures can be calculated by the system or entered manually.

Calculation of Expected Exposures

The calculation of CVA and DVA requires the expected exposures for future dates up to the end of the term of the financial transactions. The future dates are determined on the basis of the maturity band assigned. There are then two ways of calculating expected exposures:

Either by using the Constant Exposure Approach, with which the risk-free NPV is calculated for the evaluation date and then for which it is assumed that it remains constant over time (-> always the same expected exposure for all future dates) or by using the Variable Exposure Approach, with which the NPV is calculated for all future dates (changing horizon) with a constant evaluation date. In this case, the expected exposures can vary over time.

In the case of netting groups, the NPVs of the transactions of the netting group are first added together on an EE date; subsequently, the decision regarding whether ENE or EPE applies is made for that EE date and for that netting group.

The expected exposures are saved (table FTBBCVA_EE). You can call the expected exposures from either the results list or the NPV table, or by using the function Enter Expected Exposures (transaction TPMEEM).

Technical Details

Technical Name of the Product Feature

TRM_CVA_EE

The product feature is

New

Country Dependency

Valid for all countries

Software Component Version

EA-FINSERV 617

Application Component

FIN-FSCM-TRM-MR

Available as of

SAP enhancement package 7 (SP07) for SAP ERP 6.0

Prerequisite Business Functions

TRM, Credit and Debit Value Adjustments (FIN_TRM_CVA)

Additional Details

Collateral

The BAdI BADI_FTBCVA_COLLATERAL is used to check whether collateral exists for the financial transaction or for the netting group. The BAdI returns a percentage that is then applied to the expected exposure. If there is a complete hedge, the expected exposure is set to zero.

The delivered implementation sets the expected exposure to zero when a hedge has been assigned in the Credit Risk Analyzer or when an external account (such as a clearing account) has been assigned for single transactions.

Effects on Existing Data

You use the function Enter Expected Exposures (transaction TPMEEM) to enter exposures that need to be entered manually. Further, you can use the function to display expected exposures that already exist in the system. You cannot change expected exposures determined by the system.

Effects on Customizing

See also: Credit and Debit Value Adjustments: Customizing