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What Is ‘PFE’ (Potential Future Exposure) and How Is It Used in Credit Risk Management?

PFE is the estimated maximum credit exposure a counterparty might incur over time, used to set credit limits and calculate capital.
Greeks.Live13.11.25

What Is ‘PFE’ (Potential Future Exposure) and How Is It Used in Credit Risk Management?

Potential Future Exposure (PFE) is an estimate of the maximum credit exposure that a counterparty is likely to incur over a specified future time horizon, typically used for uncollateralized or partially collateralized trades. It is a forward-looking metric used by financial institutions to set credit limits and calculate the capital required to cover that potential exposure under various stress scenarios.

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