Nobody would expect a FPS to be totally correct and in fact this never happens in
reality. ‘How correct is the FPS?’ is the crucial question. The answer has to be given
ex ante. Therefore we have to:
Ω Estimate errors due to shortcomings in data (incorrect/incomplete reporting) and
Ω Evaluate the uncertainty arising from our incorrect/incomplete assumptions (no
credit and operational risk) as well as deviations stemming from unpredictable
developments.
The above will lead us to a distribution of the FPS. From that we will be able to
deduce expectations for the most probable FPS and upper and lower limits of the FPS.
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