However netting progressively applied in most countries where this trading takes place, and the complexity of the calcul
In the early 1990s credit officers started evaluating the Potential Future Exposure (PFE) of OTC derivative trades. The calculation was relatively easy as long as it was done on a trade-by-trade basis. The exposure, for instance, on a Japanese bank was equal to the sum of the trades’ expected exposures. The notion of add-on emerged as statistical averages of such calculations.