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New York Institute of Finance

Valuation and Credit Risk Management

Next dates

Oct 28—30
3 days
New York, New York, United States
USD 2956
USD 985 per day

Description

A comprehensive survey of credit risk modeling, valuation and credit risk management techniques.

This course is a component of the Advanced Credit Risk Professional Certificate.

Prerequisite knowledge:

  • Intermediate MS Excel skills
  • Basic fixed income arithmetic
  • Elementary differential calculus
  • Basic probability and statistics

CURRICULUM

Day 1

MODULE 1: INTRODUCTION

  • What is credit risk?
  • A look at the data: defaults, recoveries, spreads and cycles
  • Conceptual approaches to credit risk modelling: actuarial (objective) models vs 'risk-neutral' or valuation models

MODULE 2: SINGLE ISSUER CREDIT RISK: CREDIT TRANSITION MODELS

  • Credit transition models
  • Commercial implementations: Credit Metrics and the rating agencies

MODULE 3: SINGLE ISSUER CREDIT RISK: STRUCTURAL MODELS

  • Debt and equity as options on the assets of the firm
  • Probability of default (PD) and loss given default (LGD)
  • Expected credit loss is the value of a put option
  • Credit spreads in structural models
  • Bond risk measures in structural models
  • Commercial implementations: Moody's Analytics (MKMV) and Credit Grades
  • Rational ('strategic') default in structural models: subprime mortgages and securitization

Day 2

MODULE 1: SINGLE ISSUER CREDIT RISK: REDUCED FORM MODELS

  • Extracting (risk-neutral) default probabilities form bond prices
  • Hazard rate models of default
  • Credit spreads in reduced form models
  • Bond risk measures in reduced form models
  • A simple default time simulation for a stochastic hazard rate

MODULE 2: SINGLE ISSUER CREDIT DERIVATIVES

  • Total return swaps
  • Asset swaps
  • Credit default swaps
  • Digital CDS
  • Simple trader arithmetic for quick thinking on the trading desk

Day 3

MODULE 1: PORTFOLIO CREDIT RISK: CORRELATED DEFAULTS

  • Correlated firm value (structural models)
  • Correlated intensities (reduced form models)
  • Factor models
  • Copula functions

MODULE 2: VALUE AT RISK FOR CREDIT PORTFOLIOS

  • The large homogeneous portfolio (LHP) approximation
  • Transition VaR model: Credit Risk +
  • Credit VaR by Monte Carlo: Copula Models and Factor Models

MODULE 3: CAPITAL ALLOCATION FOR CREDIT RISK

  • VaR based risk capital
  • Option theoretic approach to risk capital
  • Regulatory Capital
  • RAROC based capital budgeting

*WHAT YOU'LL LEARN *

DESK-READY SKILLS

  • Be aware of the strengths and weaknesses in existing approaches to modeling credit risk
  • Build a simple (rating) transition model for credit risk
  • Use the structural approach to derive default probabilities from equity prices
  • Derive default probabilities from bond prices
  • Understand the mechanics of credit derivatives
  • Understand the relationship between CDS spreads and ASW spreads
  • Use ‘trader arithmetic’ to quickly determine approximations for spreads, risky PV01s, par coupon rates, etc
  • Compute OAS spreads for credit bonds
  • Use the LHP approximation to estimate the VaR of a credit portfolio
  • Be aware of the modeling techniques for default correlation
  • Use a simple Monte Carlo model (provided) for computing the VaR of a credit portfolio
  • Understand the effect of credit risk on other risk measures such as duration
  • Explain the use of RAROC as a capital budgeting and credit risk management tool

PREREQUISITES

  • Intermediate MS Excel skills
  • Basic fixed income arithmetic
  • Elementary differential calculus
  • Basic probability and statistics

Who should attend

  • Credit analysts
  • credit risk managers
  • risk controllers
  • credit traders and portfolio managers.
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