At long last...

After more than a decade of active deployment at major institutions, simulation-based estimation of counterparty credit exposure is on track to become part of the Basel II regulatory capital regime.1 David Rowe notes, however, that its impact on regulatory capital is not the most important benefit of this change

Deployment of sophisticated simulation methods for estimating counterparty credit exposure for derivatives began in earnest in the early 1990s. The first such system with which I was involved went live in December 1993 and was the subject of my first contribution to Risk.2 In 1995, Risk published a volume of collected papers entitled Derivative Credit Risk. It even included a discussion of ways to integrate default likelihood into the contingent exposure simulation process.

Looking only at the