Calculate ee and pfe

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An insurance company has entered an OTC derivative position. Assuming the market value of the transaction is defined by a normal distribution with mean = $0 million and std dev= $2 million over a year.

1. At the confidence level 99%, calculate EE and PFE.

2. The insurance company wants to fully collateralize the derivative position with cash over a daily re-margin period. Assume 250 trading days in a year and a 99% confidence level, calculate EE and PFE.

Reference no: EM133111869

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