What is FRACTIONAL EXPOSURE

The amount of future CREDIT RISK inherent in an OVERTHECOUNTER DERIVATIVE transaction , typically combined with ACTUAL EXPOSURE to determine total credit exposure. The amount of fractional exposure in a derivative is dependent on market movements in the UNDERLYING reference: the greater the potential future market moves, the greater the fractional exposure. Fractional exposure, which can be estimated through statistical or simulation methods, is positive at the inception of a transaction and declines as maturity approaches, since the opportunity for further market moves that can affect value becomes limited. Also known as DEEMED RISK, POTENTIAL MARKET RISK, PRESETTLEMENT RISK , TIMETODECAY RISK.