Credit Risk and Credit Derivatives
October 18-20, 2010 • MICHEL CROUHY
Credit risk has become the new frontier in investments and risk management. The subprime credit crisis of 2007 and its contagion to other credit markets has revealed major weaknesses in credit risk management, credit risk measurement, and the pricing and hedging of credit derivatives. This course builds on the lessons from this crisis and will present to the participants best practice techniques in managing, structuring and modeling credit risk.
Objectives: To provide participants with a thorough understanding of the most recent credit-risk models, their use in both pricing and managing credit exposures, and to show how credit derivatives can be used for either position taking, structured financing or exposure management. Best practice approaches will be presented to help practitioners from financial institutions, asset management firms and non-financial corporations to take value-increasing credit-risk related decisions.
Target audience: Risk managers, structured financing specialists, fixed-income and credit derivatives traders and structurers, asset managers, corporate treasurers, consultants, bank supervisors and other regulators and all professionals who wish to keep in touch with the latest developments in the field of credit-risk pricing and management.
Fees: The fee for this course is CHF 4.700 (incl. VAT). This covers tuition, extensive course material (including pre-course readings), lunches and an official event.
Accreditation: CFA 21 CE credits
Key topics: Credit risk; credit portfolio management; credit portfolio models: KMV, CreditMetrics, CreditRisk+; credit derivatives: credit default swaps (CDSs), collateralized debt obligations (CDOs) cash and synthetic; credit derivatives pricing models; risk-adjusted performance measures and risk contribution.
COURSE CONTENT
Day 1
- Basic concepts: The many facets of credit risk. How does credit risk differ from market risk? Interactions between market risk and credit risk;
- Basel II: The Internal Rating-Based approach and the securitization framework for regulatory capital attribution;
- Credit rating systems;
- Typology of credit derivatives and their main applications.
Day 2
Measuring and managing portfolios of credit risk – current practices:
- Expected vs. unexpected loss;
- The credit migration approach: CreditMetrics;
- The contingent claim approach: KMV credit monitor and credit portfolio manager;
- The actuarial approach: CreditRisk+;
- Calculating risk-adjusted performance measures: Economic capital attribution, risk contribution.
Day 3
Credit default swaps (CDSs), credit indices, securitization and structured credit products (CDOs/CLOs cash and synthetic, single-tranche CDOs and bespoke tranches)
- Structures, tranching
- Copula based pricing and hedging; its limitations
- Second generation pricing models
- Extensions of the Gaussian Copula model with jumps and stochastic recovery
- Bottom-up multi-factor models
- Top-down multi-period dynamic models for forward spreads for exotic instruments (forward start tranches, tranche options, leveraged super-senior tranches)
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