How do you calculate the Potential Future Exposure (PFE) for a swaption?

Do you incorporate the dynamics of implied volatility when you are running your simulations?

Is there a standard way to model the real-world joint dynamics of rates and volatilitiess?

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    $\begingroup$ What do you mean by PFE? Please be specific and include links for definitions if possible. $\endgroup$ – SRKX Nov 22 '12 at 14:39
  • $\begingroup$ By PFE I mean potential future exposure. pls see eg. en.wikipedia.org/wiki/Potential_future_exposure $\endgroup$ – juinisoi78 Nov 22 '12 at 21:53

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