A two-day course on how to build, implement and validate models for calculating PD, LGD, EAD and RWA
The purpose of this workshop is to give you a practical understanding of methods for estimating and using the risk parameters (PD, LGD and EAD) in the Basel III IRB Risk Weight Function.
The course is primarily targeted towards persons who work "hands-on" with credit risk modelling in banks. The course is, however, also very relevant to senior staff members and to regulators, who need a thorough understanding of the "workings" of the IRB-A approach and of the challenges of estimating, implementing and validating models for quantifying credit risk.
We start with a brief introduction to the IRB approach to measuring credit risk. We explain and demonstrate how estimates for the risk parameters are translated into risk weights using the Supervisory Risk Function, and we discuss the underlying assumptions.
We then turn to look in more detail at various approaches to modelling PD, LGD and EAD. We will focus particularly on challenging issues such as the modelling of PD and LGD for low-default portfolios and the estimation of recoveries under the "workout" method. We also thoroughly explain methods for estimating the EADs for credit lines and OTC derivatives.
Finally, we explain how PD and LGD models can be validated and how the outputs can be used for regulatory and internal management purposes.
The course is designed as mix of theoretical presentations/discussions, practical examples and small exercises.