Advanced Credit Risk Modelling and Management

Thursday, December 3

09.00 - 09.15  Welcome and Introduction

09.15 - 12.00  New Challenges in Credit Risk Management

• Why Credit Risk Has Become More Important
• The “Subprime” Crisis and the Global Financial Meltdown
• The Integration of Market and Credit Risk
• Types of Credit Risks in Banking and Securities Trading
• Overview of Approaches to Modelling Credit Risk

Modelling Default Risk and Default Correlations

• Structural Models for Default Risk
  • Modelling Credit Risk as an Option
  • Merton’s Option-Theoretical Model
  • Models with an exogenous default boundary
  • Models with an endogenous default boundary
• Case Studies
  • Moody’s KMV™
  • CreditGrades
• An Empirical Valuation of Structural Credit Risk Models
• Practical Case Studies and Exercises

12.00 - 13.00  Lunch

13.00 - 16.30  Modelling Default Risk and Default Correlations (continued)

• Reduced form Models for Default Risk
  • Duffie and Singleton
  • Lando
  • Extracting default probabilities and dependencies from market prices
• Copula Models
  • Specifying the joint distribution of survival times from market information
  • Using copula functions in the valuation of credit derivatives
• The Term Structure of Credit Risk
• Measuring Credit Portfolio VaR
• Measuring Economic Capital
• Risk-Based Loan Pricing
• Practical Case Studies and Exercises

Friday, December 4

09.00 - 09.15  Brief recap

09.15 - 12.00  Managing Credit Risk

• Overview of Methods for Managing Credit Risk
• Using Collateral to Manage Credit Risk
  • Calculating the “haircut”
  • Collateral management
• Using Margining to Manage Credit Risk
• Using Credit Derivatives to Transfer Credit Risk
  • Overview of credit derivatives and their mechanics
  • Credit default swaps
  • Total return swaps
  • Credit options and credit spread options
  • Using “n^th-to-default” swaps
  • Hedging counterparty risk with dynamic credit default swaps
  • Using iTraxx and CDX to gain or remove “macro” credit exposure
  • Delta-hedging CDO-tranches
  • Measuring and Managing Counterparty Risk
• Practical Case Studies and Exercises

12.00 - 13.00  Lunch

13.00 - 16.00  Managing Credit Risk (Continued)

• Using Securitization to Transfer Credit Risk
  • “Traditional” asset-backed securitization
  • Securitization of receivables
  • Securitization of bank loans and bond portfolios
  • Securitization and the “shadow banking system”
  • Improving RAROC through securitization
  • Synthetic securitization
  • Hybrid securitization transactions
  • Legal and accounting issues in securitization
  • Risk of using securitization for financing and investing
  • Treatment of securitization under Basel II
• Practical Case Studies and Exercises

Evaluation and Termination of the Seminar

Moody’s KMV™ is registered trade mark of Moody’s KMV.