Forward Exposure

The forward exposure methodology involves the computation of the Forward Exposures, that is, forward-looking Exposure at Defaults or Forward EADs, at a different point in time in the future till the maturity of the instrument and then compute the Expected Credit Loss from them. The Forward Exposure values are calculated by the application using the Contractual cash flows, which can either be generated by Oracle's CFE or by an external engine.

The application also has a feature to obtain Forward Exposure values and the corresponding forward dates directly as a download. If both Cash Flows and Forward Exposure values are not available, then the account is processed through the Provision Matrix methodology.

This section details the steps involved in forwarding Exposure calculation for various stages.

Forward Exposure on each cash flow date is calculated from the cash flows generated or obtained as a download. The LLFP application calculates the Forward Exposure on each cash flow date as the Net present value of all future and current cash flows, discounted using the Effective Interest Rate (EIR) of the account or Cohort. Forward exposures are calculated till the last cash flow of the account.