Counterparty Risk and Collateral Management

About the teacher's Counterparty Credit Risk new book:

“Congratulations to Jon Gregory. This is a very readable book about an area that has become increasingly important to all financial institutions.”

Professor John Hull - University of Toronto, Canada
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Course Outline

This course explains and develops the ideas and models for collateral management and the measurement and quantification of counterparty risk. The ideas are built up sequentially and workshops are used to develop the key ideas including margin calculations, estimation of haircuts, credit exposure and pricing counterparty risk. Participants will be able to take away all worked examples and additional exercises and models implemented using Excel functions and macros.

All delegates will receive a copy of Jon Gregory's recent published book "Counterparty Credit Risk: The New Challenge for Global Financial Markets" (Wiley).

Who The Course is For

Credit traders and credit officers
Risk managers and credit risk practitioners
Structurers and salespeople
IT
Middle office
Senior management
Quantitative researchers
Product control
Portfolio managers
Operations / Collateral management

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Prior Knowledge

Numerate background (basic)
Knowledge of derivatives products
Basic knowledge of Microsoft Excel

This program is eligible for 24 Continuing Education credit hours from the CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.

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Day One

Basics of collateralisation

Credit exposure and collateral

Defining credit exposure
Expected positive exposure and worst case exposure
Typical credit exposure profiles for different products
Exposure netting
Impact of collateral
Benefits of effective collateral management

Workshop: Computing credit exposure and showing the impact of collateralisation

Basics of collateral management

Types of eligible collateral
Haircuts, thresholds and minimum transfer amounts
Portfolio reconciliation
Cross-product collateralisation
Basel 2 treatment

Workshop: Implementing a general method for calculating posting and return amounts including current collateral, thresholds, independent amounts, minimum transfer amount, haircuts and rounding

Day Two

Advanced issues in collateralisation

Risks of collateralisation

Organisational considerations
Legal requirements
Outsourcing
Operational and settlement risk
Dispute resolution

Workshop: Calculating appropriate haircuts with a value-at-risk approach as a function of security type and maturity

Impact of correlation and volatility on collateralisation

Incorporating collateral in an exposure management framework
Volatility, value-at-risk and haircuts
Correlation and wrong-way collateralisation
The effective margin call frequency
Liquidation impact on price

Workshop: Are the independent amounts and haircuts large enough? Simulating the impact of volatility, correlation and forced liquidation. Calculating the optimal liquidation period

Day Three