|
Provided by: FitchTraining Counterparty Credit Risk in DerivativesAccounting and Finance |
 |
Training
Provided by FitchTraining
A three-day workshop for credit risk, derivative and finance professionals to assess counterparty risk in derivative transactions and repos. The workshop imparts the analytic skills needed to assess the types and amounts of credit exposure across the major derivative products and applies lessons learned from the current crisis to mitigate risk.
Related Awards, Degrees or Certifications: Earn CPD credits
We are an accredited training provider with a number of institutions including:
ACCA
NASBA
Securi
|
|
||||||||||
Counterparty Credit Risk in Derivatives
Target Audience
Risk managers, bankers, analysts, controllers and regulators who need to understand how derivative risk is measured, mitigated and accounted for in an increasingly complex world. A basic understanding of derivative product structures is required.
Course Objectives
Specifically, participants will be equipped to:
Understand the various types of counterparty credit risk occurring in derivative products and repurchase agreements (repos)
Assess in detail the counterparty credit risks in interest rate, foreign exchange, credit derivative, equity, and repo products
Apply lessons learned from the current crisis to structure and reduce counterparty risk
Calculate the counterparty credit risk of a portfolio of transactions
Analyse and reverse engineer complex derivative transactions to determine counterparty risk.
Background
Derivative markets continue to grow in size, in product range, and in complexity. It is no longer appropriate for credit risk professionals to recommend and approve credit limits for derivative transactions without understanding the particular transactions that are being approved:
What are the cash flows?
What underlying rates drive the risk in the transaction?
Does the counterparty fully understand the risks it is taking?
Have we priced credit risk into the transaction?
Have the traders rolled a transaction where the counterparty is losing money, or have they otherwise lent funds?
How do we combine together numerous derivative transactions where there may be offsetting risks? . and so on.
The questions are numerous. Today, credit departments need to play a far more active role in both assessing risk, mitigating that risk where necessary, and then approving it. Even basic concepts, such as understanding how a confidence level is used and its implications for credit limits, are often poorly understood even by individuals who have been approving credit limits for years. These points, and many more, need to be mastered. This course has at its core the assessment of the credit risk of the most common derivative types. But it goes much further, covering:
Accounting issues
Correct uses, cash flows and hidden dangers of each product
Other risks: market, legal, operational, liquidity and reputation
Credit pricing in derivatives
Shape of the pre-settlement credit exposure curve over time
Numerous ways to mitigate credit risk in derivative transactions
Credit risk in a portfolio of transactions and in complex trades.
Credit professionals are often over-awed by derivative product complexities. The course aims to demystify things and to bring participants to the point where they can enter into discussions with traders on an equal footing. The course does not have a heavy mathematical content we do not develop the Black Scholes model from first principles, or price options, or use long equations with Greek symbols Of course, we do assess many option types and we do have to carry out some mathematical computations, but a reasonable level of numeracy will suffice for this.
Content
OVERVIEW
Differentiating derivative credit risk from other credit risk types
Defining the six major categories of derivative credit risk
Identifying and measuring these risks
Contrasting credit risk and market risk.
Accounting for derivatives
Basics of accounting for derivative products
Impact of different accounting standards: IFRS39 and SFAS133
Comparing impact on cash flow with accounting treatment.
PRODUCT ANALYSIS
FX forwards, swaps, and options
The credit risks, risk drivers and estimation approaches
Settlement risk: definition and risk mitigation approaches
Warning signals such as barrier options, embedded loans and wrong-way trades.
Interest rate derivatives
Covering vanilla and structured swaps, caps, floors & swaptions
Warning signals such as embedded loans and deferred premiums.
Credit derivatives
(a) Credit default swaps ( CDS ) and (b) Replication products such as total return swaps
Specific CDS issues such as credit event definitions, settlement methods, and documentation deficiencies
Unwind and settlement issues arising from the Credit Crunch .
Equity derivatives
Product structures and the impact on credit risks
Specific risks in equities e. g. event risk, correlation/ wrong way exposures, legal and regulatory issues
Repos
Product structure and credit risks
Comparing repos with buy/ sellbacks and secured loans.
STRUCTURING AND MANAGING EXPOSURES
Documentation
Legal documentation, including the ISDA Master & CSA
Credit issues arising when negotiating legal agreements.
Credit mitigation
Covering collateral, netting, early termination, cash settlement, resets, etc.
Understanding initial/ variation margin agreements and threshold arrangements.
Combining exposures
Understanding the key issues in exposure aggregation (different maturities, offsetting exposures, etc) and limit management
Assessing complex transactions
Decomposing a complex trade into its component parts
How to handle complex trades that cannot easily be decomposed.
Risk managers, bankers, analysts, controllers and regulators who need to understand how derivative risk is measured, mitigated and accounted for in an increasingly complex world. A basic understanding of derivative product structures is required.
Course Objectives
Specifically, participants will be equipped to:
Understand the various types of counterparty credit risk occurring in derivative products and repurchase agreements (repos)
Assess in detail the counterparty credit risks in interest rate, foreign exchange, credit derivative, equity, and repo products
Apply lessons learned from the current crisis to structure and reduce counterparty risk
Calculate the counterparty credit risk of a portfolio of transactions
Analyse and reverse engineer complex derivative transactions to determine counterparty risk.
Background
Derivative markets continue to grow in size, in product range, and in complexity. It is no longer appropriate for credit risk professionals to recommend and approve credit limits for derivative transactions without understanding the particular transactions that are being approved:
What are the cash flows?
What underlying rates drive the risk in the transaction?
Does the counterparty fully understand the risks it is taking?
Have we priced credit risk into the transaction?
Have the traders rolled a transaction where the counterparty is losing money, or have they otherwise lent funds?
How do we combine together numerous derivative transactions where there may be offsetting risks? . and so on.
The questions are numerous. Today, credit departments need to play a far more active role in both assessing risk, mitigating that risk where necessary, and then approving it. Even basic concepts, such as understanding how a confidence level is used and its implications for credit limits, are often poorly understood even by individuals who have been approving credit limits for years. These points, and many more, need to be mastered. This course has at its core the assessment of the credit risk of the most common derivative types. But it goes much further, covering:
Accounting issues
Correct uses, cash flows and hidden dangers of each product
Other risks: market, legal, operational, liquidity and reputation
Credit pricing in derivatives
Shape of the pre-settlement credit exposure curve over time
Numerous ways to mitigate credit risk in derivative transactions
Credit risk in a portfolio of transactions and in complex trades.
Credit professionals are often over-awed by derivative product complexities. The course aims to demystify things and to bring participants to the point where they can enter into discussions with traders on an equal footing. The course does not have a heavy mathematical content we do not develop the Black Scholes model from first principles, or price options, or use long equations with Greek symbols Of course, we do assess many option types and we do have to carry out some mathematical computations, but a reasonable level of numeracy will suffice for this.
Content
OVERVIEW
Differentiating derivative credit risk from other credit risk types
Defining the six major categories of derivative credit risk
Identifying and measuring these risks
Contrasting credit risk and market risk.
Accounting for derivatives
Basics of accounting for derivative products
Impact of different accounting standards: IFRS39 and SFAS133
Comparing impact on cash flow with accounting treatment.
PRODUCT ANALYSIS
FX forwards, swaps, and options
The credit risks, risk drivers and estimation approaches
Settlement risk: definition and risk mitigation approaches
Warning signals such as barrier options, embedded loans and wrong-way trades.
Interest rate derivatives
Covering vanilla and structured swaps, caps, floors & swaptions
Warning signals such as embedded loans and deferred premiums.
Credit derivatives
(a) Credit default swaps ( CDS ) and (b) Replication products such as total return swaps
Specific CDS issues such as credit event definitions, settlement methods, and documentation deficiencies
Unwind and settlement issues arising from the Credit Crunch .
Equity derivatives
Product structures and the impact on credit risks
Specific risks in equities e. g. event risk, correlation/ wrong way exposures, legal and regulatory issues
Repos
Product structure and credit risks
Comparing repos with buy/ sellbacks and secured loans.
STRUCTURING AND MANAGING EXPOSURES
Documentation
Legal documentation, including the ISDA Master & CSA
Credit issues arising when negotiating legal agreements.
Credit mitigation
Covering collateral, netting, early termination, cash settlement, resets, etc.
Understanding initial/ variation margin agreements and threshold arrangements.
Combining exposures
Understanding the key issues in exposure aggregation (different maturities, offsetting exposures, etc) and limit management
Assessing complex transactions
Decomposing a complex trade into its component parts
How to handle complex trades that cannot easily be decomposed.
About The Training Provider: FitchTraining
FitchTraining - Fitch Training is a specialist training firm focused on the provision of credit and corporate finance training. Courses are offered in three areas: financial institutions, corporate credit and securitization. Fitch Training is part of Fitch Solutions, a division of the Fitch Group. We also work in partnership with Fitch Solutions to provide quantitative training.
Fitch Training operates...
