CVA is found by discounting expected exposure for each period to today, multiplying it by the probability that the counterparty defaults in that period and by the loss given default, and adding the results. Under the internal model method of the capital adequacy rules (called the expected exposure method in Japan's capital adequacy notice), expected exposure at each date is used to calculate effective EPE.
Consider a hypothetical example in which the market values of 10 scenarios six months ahead are −400, −300, −200, −100, 0, 100, 200, 300, 400, and 600 million yen. Setting the negative values to zero gives a total of 1,600 million yen, so expected exposure is 160 million yen. The average of the market values themselves is 60 million yen, which is smaller than expected exposure.