Credit Risk of OTC Derivatives

In recent years, over-the-counter swaps and options have developed from a new product into a standard risk management tool. Yet despite derivatives' commonplace nature, establishing an effective risk management process remains a challenging undertaking. Hands-on spreadsheets with a simplified mathematical framework are provided to illustrate the general theory for evaluating the risk of over-the-counter derivative transactions. The focus is on practical implementation issues for establishing an effective risk management process.

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CPE CREDITS
14.0
Front, middle and back office personnel, IT professionals, regulators, auditors, management consultants, financial journalists.
No advance preparation required.
Students will be able to:
  • Identify the drivers of credit risk in Interest Rate, Foreign Exchange and Equity OTC Derivatives
  • Evaluate credit risk measurement models
  • Construct a framework for evaluating credit risk of OTC Derivatives
  • Determine best practices to monitor credit risks of OTC Derivatives
  • Evaluate how to control for credit risk in derivatives such as estimating Pre-Settlement Risk for Credit Limit purposes, contrasting the risk calculation for Credit Limit purposes and Risk/Return purposes, describing risk mitigation benefits of Netting and Collateral and how to reflect them in your risk management process
  • Discuss potential implementation issues and possible approaches to resolve them in order to create an effective credit risk management process.
Basic knowledge of risk management and financial products
  • Credit Derivatives: Intermediate
  • Credit Derivatives: Intermediate - Evening
  • Risk Management Suite
    • DAY 1
    Derivatives and the Evolving Role of the Credit Risk Manager
    • Risk Management Framework
    • Identifying Credit Risk
    • Current Credit Exposure
    • Potential Future Exposure / Risk

    Credit Risk in Derivatives

    • Interest Rate Products
    • FX Products
    • Equity Products
    • Complex Options

    Statistics Review

    • Distributions and Confidence Levels
    • Estimates using 'the formula'
    • Volatility: what is it and how is it calculated

    Measuring Credit Risk

    • Estimating Counterparty Risk
    • Estimating Risk Mitigation
    • Issues for estimating PFE multiple products
    • •Documentation, Netting Enforceability
    • Correlation among variables
    • The use of Monte Carlo techniques
    • Evaluating Credit Risk Measurement models
    • Stress Tests

    DAY 2
    Monitoring Credit Risk in Derivatives
    • Defining the Monitoring Process
    • Evaluating Best Monitoring Practices
    • Integrating the Framework Systems and Data

    Controlling Credit Risk

    • Data Quality
    • Transactions
    • Market Data
    • Model Development & Maintenance
    • Potential Future Exposure Limits vs. Risk / Return calculations
    • Issues for Calculating Risk Return

    Credit Derivatives

    • Identifying and Structuring
    • Total Return Swaps
    • Credit Default Swaps
    • Credit Linked Notes
    • Identifying Key Risks in Credit Derivatives
    • Credit, Market, Operation, and Legal Risks

    Clients who register for this course will receive a complimentary 4-month subscription to FT.com. The Financial Times is the world's most respected financial newspaper, providing a broad assessment on finance, business and the industrial sector. The move to the electronic version follows an ongoing review of our environmental responsibilities as a global business and as part of the Pearson group. FT.com also has features that are not available in hard copy, such as: Special Reports, Alphaville, editor blogs, education sections and much more! Subscriptions will start within 6-8 weeks of the start of class and are limited to one subscription per client. (Please note: as of May 1, 2011, the electronic subscription replaces the hard-copy 3-month Financial Times subscription.)

    Lunch is included for all students taking day classes.