A CREDIT RISK exposure computation methodology for SWAPS using historical INTEREST RATES. Under the historical method past interest rate (or swap rate) data is used to create a statistical distribution of rates. Following an adjustment to a prespecified CONFIDENCE LEVEL , forward swap rates are determined, allowing the swap to be revalued at each forward point and discounted back to the present; the largest exposure obtained during the revaluation process becomes the swap
Black’s Law Online Dictionary
