The model used by the institution for that purpose shall:
Except for counterparties identified as having Specific Wrong-Way risk that fall within the scope of Article 291(4) and (5), institutions shall calculate the exposure value as the product of alpha (α) times Effective EPE, as follows:
Effective EPE shall be calculated by estimating expected exposure (EEt) as the average exposure at future date t, where the average is taken across possible future values of relevant market risk factors.
The model shall estimate EE at a series of future dates t1, t2, t3, etc.
Effective EPE is the average Effective EE during the first year of future exposure. If all contracts in the netting set mature within less than one year, EPE shall be the average of EE until all contracts in the netting set mature. Effective EPE shall be calculated as a weighted average of Effective EE:
where the weights
allow for the case when future exposure is calculated at dates that are not equally spaced over time.
in the denominator, EPE shall be used as if it were a fixed outstanding amount.
When estimated in accordance with this paragraph, alpha shall be no lower than 1,2.