Credit Risk Management - Basel II and Beyond

Day One

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 Integration of Market and Credit Risk
• Types of Credit Risks in Banking and Securities Trading
  • Issuer risk
  • Counterparty risk

Measuring Credit Risk under Basel II

• Standardized Approach to Measuring Credit Risk
  • Using external ratings
  • Treatment of off-balance items
  • Treatment of collateral and netting
• Practical Case Studies and Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Measuring Credit Risk under Basel II (continued)

• The Internal Ratings-Based Approach
  • Mechanics of the IRB Approach
  • Categorization of exposures
  • Foundation and advanced approaches
  • Rules for corporate, sovereign, and bank exposures
  • Rules for Retail Exposures
  • Treatment of risk mitigation (collateral, netting, credit derivatives)
• Special Discussion: Estimation of risk components when there are no liquid stock markets or historical data
• Practical Case Studies and Exercises

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Modelling Default Risk and Default Correlations

• Structural Models for Default Risk
  • Modeling 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
• Empirical Valuation of Structural Credit Risk Models
• Calculating Inputs for the Basel IRB Approach
• 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
• 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 Counterparty Risk
  • Model for integrating market and credit risk
  • Taking netting arrangements into account
• Practical Case Studies and Exercises

Day Three

09.00 - 09.15 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
  • 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
• Practical Case Studies and Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Managing Credit Risk (Continued)

• Using Securitization to Transfer Credit Risk
  • “Traditional” asset-backed securitization
  • Securitization of bank loans and bond portfolios
  • Synthetic securitization
  • Hybrid securitization transactions
  • Legal and accounting issues in securitization
• Practical Case Studies and Exercises

Evaluation and termination of the Seminar