Credit Risk in Derivatives Products

Transcription

1 Credit Risk in Derivatives Products Understand how derivatives work, how they are used and the inherent credit risk experienced by both banks and their customers This in-house course can be presented in-house either on your premises or via live webinar for a group of 4 or more participants. Trusted By: The Banking and Corporate Finance Training Specialist

2 What Makes This Course Different Although mathematics is essential in these markets, all the case studies and exercises are explained with the use of a simple calculator. You DON T need to be a mathematician to understand! This course will allow you to become familiar with the major derivative products and how they are used by the bank and its clients. You will also learn about Counterparty Risk, the increase in Multilateral Netting through Course CCPs, Overview the use of collateral and other methods, which are a crucial tool in the reduction of credit risk. We will drill down into how CVA (Credit Value Adjustments) are made and the role of DVA (Debit Value Adjustments) and FVA (Funding Value Adjustments) in pricing todays deals. We will also cover all the important products and topics including: Futures, IRS, CDS, Options and Collateral and ISDA documentation Course Objectives Learn what Counterparty Risk is and how it occurs in derivatives. We look at individual derivative types and examine how Market Risk creates Credit Risk Understand how credit risk in Futures is largely mitigated through margining. Learn what risks still remain in the real world Gain an understanding of how credit risk occurs in all the major derivative products. Appreciate how credit risk mitigation can reduce risk. Netting, unwinds, collateral transformation, margins, trade compression Gain knowledge of Credit Risk exposure calculations, such as Expected Exposure. Potential Exposure, CVA and CVX Will look at how derivatives are accounted for and have overview of IFRS 9 rules Course Content Overview of Derivatives Major Market Players Derivative Types ETD v OTC Futures v Forwards Options Exercise: P&L on futures contracts Futures Strips exercise Case study: Leverage with Index Futures Hedging with Index Futures Cash and Carry Trades Case study, how cash and carry works

3 Forward Interest Rate Currency Forward Exercise: calculating the forward points Case study : Hedging with NDFs Option Basics Terminology Hockey Stick Diagrams Option Settlement and Counterparty Risk Pay off / P&L Binomial Pricing Black Scholes Model Basic understanding of how it works Why is it so useful Overview of the Greeks ( Delta, Gamma. Vega, Theta, Rho etc) FRAs pricing Exercise on FRA price calculation and settlement The Yield Curve IRSs Understanding IRS and their use Pricing an IRS Exercise: calculating the P&L CDS overview How CDS trade Portfolio Credit Risk Exercise Day Two How Counterparty Risk is different for Derivatives Credit Risk Default Risk Corporate Credit Ratings Credit Spread Calculations Exercise: considering credit ratings and credit spreads Derivatives and credit risk Herstadt Risk and CLS Counterparty Risk and FX Forwards Exercises: including valuing a counterparty exposure on an option

4 ISDA Master Agreements How does Master Agreement work CSA (Credit Support Annex) Swap Unwinds Evaluation of Counterparty Exposure Netting and the CCP How Compression Works Close Out Netting Collateral Transformation and Optimisation What if a CCP goes bust? Collateral Management How does Collateral Management work? Collateral transfers Margin Calls Threshold Minimum Transfer Amount (MTA) Day 3 Counterparty Risk for IRSs Exercise: calculating the CVA risk for an IRS Basic Calculations of CVA (Credit Value Adjustments) and DVA(Dedit Value Adjustments) Current Exposure Expected exposure (EE) Potential Exposure (PE) Credit Derivative Spread and CVA Exercise: calculating the CVA risk Adjustments for Funding (FVA) Case study: Equity Derivatives Example CVX comparison table VaR Value at Risk explained Monte Carlo Methods Wrong Way Risk Case study Hedge Accounting IFRS 9 Fair Value

5 Cash Flow Net Investment Course Quiz: Delegates take a quiz covering the whole course to ensure their understanding. We mark the quiz and finish by discussing any areas delegates may have found difficult, so that they all leave with a thorough understanding of the topics covered. Background of the Trainer The trainer worked in Investment Banks including HSBC and Bank of Montreal for nearly 20 years. During this time he worked in Operations and then as a trader, running books in FX, bonds and derivatives. He has run courses all over the world including Amsterdam, Dublin, London, New York, Hong Kong, Singapore, Jakarta, Johannesburg, Delhi, Accra, Johannesburg etc. He delivers courses which focus on providing a practical and in depth understanding of the markets from a Trading, Operations and Risk viewpoint. His courses are interactive and stimulating, offering delegates the opportunity to participate in an environment which encourages free discussion of the real issues faced in the workplace. He held the position of Non-Executive Director of Cazenove s Derivative Oversight Committee for many years. Acting as a member of the committee in a general consultative capacity to assess the firm s derivative capabilities and risks. The trainer has also presented at JPMorgan Forums in London, speaking on topics such as the Benefits and Risks of Derivatives. He along with representatives from the FSA, law firms, hedge funds etc were asked to give their views on the risks of derivatives to 150 / 200 Directors and senior managers from the top investment firms in the UK. Course Summary The programme is designed to give participants an in depth understanding of how Credit Risk occurs in derivative products. How the products work on a practical basis, with illustrations of how counterparty credit risk occurs and how it can be measured. The capital costs and credit mitigation techniques are fully explored.

6 Tailored Learning All of our training courses can be tailored to suit your company s exact training needs. We will work closely with you to help develop a training programme with content that is unique for your organisation. Please us on enquiries@redcliffetraining.co.uk for more information E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact requirements.