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
Click for more comments
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
Tell a colleague about this course
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.
Brochure with Booking Form | Register
to Receive Updates
Day One
Credit exposure
Introduction
- A history of counterparty risk
- OTC derivatives and counterparty risk
- CVA - pricing and hedging counterparty risk
- Wrong-way risks
- Credit derivatives
- Systems issues
Credit exposure
- Credit limits
- Defining credit exposure
- Expected exposure (EE) and potential future exposure (PFE)
- Expected positive exposure (EPE)
Workshop: computing EE, PFE and EPE under simple assumptions
Mitigation of credit exposure
- Trade compression
- Early termination agreements (ETAs) / break-clauses
- Netting and close-out
- Hedging
Workshop: impact of netting on exposure
Collateral
- Benefits of effective collateral management
- Types of eligible collateral
- Haircuts
- Independent amounts, thresholds and minimum transfer amounts
- Interest rates, coupons and dividends
- Analysis of haircuts
Workshop: implementing a collateral calculation to calculate call and return amounts
Additional questions, problem solving and review of the day
Day Two
Quantifying credit exposure and portfolio considerations
Methodology for simulating credit exposure
- Risk factors
- Monte Carlo methodology
- Revaluation
- Typical credit exposure profiles
- The impact of optionality
Workshop: example exposure simulation for a swap
Quantification of credit exposure in the presence of risk mitigants
- Impact of ETAs
- Incremental and marginal exposure
- Effective remargin period and close-out
- Impact of collateral on exposure
- Correlation between exposure and collateral
Workshop: quantifying the impact of collateral and netting on credit exposure
Default and credit derivatives
- Defining default probability
- Historical default data
- Recovery rates
- Credit default swaps (CDSs) and credit spreads
- Market-implied default probabilities
- CDS indices and default probability mapping
Workshop: calculating default probability from CDS quotes
Portfolio counterparty risk and Basel requirements
- Regulatory approach to PFE
- The copula approach to credit portfolio modelling
- Application to CCDS
- The impact of PFE on credit portfolio losses
- The alpha factor
Workshop: computing the alpha factor for various different credit porfolios
Additional questions, problem solving and review of the day
Day Three
Credit Value Adjustment (CVA)
Pricing counterparty risk
- Accountancy requirements and mark-to-market
- Credit value adjustment (CVA)
- CVA simple formula
- How to compute CVA accurately
- DVA (debt value adjustment)
Workshop: computing CVA and DVA using approximate and more accurate methods
CVA in practice
- Incremental and marginal CVA
- CVA for collateralised exposures and the interbank market
- Hedging counterparty risk
- The role of a counterparty risk group
Workshop: computing CVA in the presence of netting and collateral
Wrong-way risk
- Introduction, evidence and examples of wrong-way risk
- Approaches to wrong-way risk – examples for FX and options products
- Credit default swaps
- Portfolio credit derivatives
- Monoline insurers
Workshop: simple wrong-way risk model and simple CDS counterparty risk calculation
Central counterparties (CCPs)
- The need for central clearing
- Multilateral netting
- The mechanics of trading through a CCP
- Advantages and disadvantages
- Too big to fail?
