The purpose of this seminar is to give you a good understanding of state-of-the-art tools and techniques for measuring and managing credit risks.
First, we discuss important market developments that have lead to and increased focus on the management of credit risk: The integration of market and credit risk, the increasing use of off-balance financing techniques and complex structures such as CDO-Squared, and the introduction of the new Basel framework for capital coverage.
Further, we look at the new Basel approaches to measuring credit risk. We briefly present the standardized approach before we give a more in-depth explanation of the "Internal Ratings Based" approach. We explain the mechanics of the approach and we demonstrate how the risk weights are derived for different exposure types. We also look at how the individual risk components such as "Probability of Default", "Loss Given Default", "Exposure at Default" and "Effective Maturity" are calculated for on-balance as well as for off-balance instruments. We also discuss the "minimum requirements" that must be met to qualify for the IRB approach.
We then take you far beyond the Basel guidelines to develop a powerful program for controlling your firm's credit risk. We explain how different credit risk modelling techniques, including structural models (such as Merton, Black and Cox, Longstaff and Schwartz, Zhou and Hull and White), as well as "reduced form" models (such as Duffie and Singleton and Lando), can be used for the estimation of credit default risk and default correlations. We also explain how "Credit VaR" is calculated and used as basis for risk-adjusted pricing of loans, bonds and more complex structures.
Finally, we present and explain methods for transfer, repackaging and mitigation of credit risk, including the use of collateral, margining, securitization, credit derivates and structured credit products such as CDO's.
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