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Credit Risk in Derivatives Products

Learn how derivatives work, how they are used and the inherent credit risk experienced by both banks and their customers

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A two-day course presented in a virtual class from 09:30 to 17:00 UK Time

Day One

Overview of Derivatives / Major Market Players

Derivative Type

  • ETD v OTC
  • Futures v Forwards
  • Options

Exercise: P&L on futures contracts
Exercise: Futures Strips
Case study: 

  • Credit Risk Reduction in ETDs
  • Margining & CCPs

Exercise: Currency Forward - calculating the forward points
Case study: Hedging with NDFs

  • The Yield Curve


  • Understanding the IRS and their use
  • Pricing and IRS
  • IRSs trading on an OTF/SEF at the CCP

Exercise: Calculating the P&L
Exercise: Multilateral netting

CDS overview

  • How CDS trade
  • Standardisation of contracts for Netting

Exercise: Bloomberg Pricing and Credit Risk

How Counterparty Risk is Different for Derivatives

Credit Risk

  • Default Risk
  • Corporate Credit Ratings
  • Credit Spread Calculations
  • Derivatives and credit risk… Counterparty Credit Risk

Exercise: considering credit ratings and credit spreads

Day Two

Counterparty Risk Calculation and FX Forwards

  • Herstatt Risk and CLS
  • Payment Vs Payment Netting

Exercise:  Valuing a counterparty exposure on an option

Counterparty Risk for IRSs

Exercise: calculating the CVA risk for an IRS

Basic Calculations of CVA (Credit Value Adjustments) and DVA (Debit Value Adjustments)

Current Exposure, Expected exposure (EE) and Potential Exposure (PE)

Credit Derivative Spread and CVA

Exercise: calculating the CVA risk

Adjustments for Funding (FVA)

Case study: Equity Derivatives Example

ISDA Master Agreements

  • How does Master Agreement work?
  • CSA (Credit Support Annex)

Swap Unwinds

  • Evaluation of Counterparty Exposure
  • Netting and the CCP
  • How Compression Works
  • Close-Out Netting
  • Collateral Transformation and Optimisation
  • What if a CCP goes bust?

Collateral Management

  • How does Collateral Management work?
  • Collateral transfers
  • Margin Calls
  • Threshold
  • Minimum Transfer Amount (MTA)

Cleared, Uncleared and Margin trades

  • MPoR (Margin Period of Risk)
  • IM & VM Rules for Uncleared Derivatives
  • IM Segregation at a Custodian
  • AANA (Average Aggregate Notional Amounts)
  • Trade Life Cycle…comparison of OTC trades

Course Quiz

Delegates take a quiz covering this credit risk in derivatives course to ensure their understanding. We mark the quiz and finish by discussing any areas you may have found difficult so that you leave with a thorough understanding of the topics covered.

Redcliffe's credit risk in derivatives products course trainer has worked in Investment Banks for nearly 20 years, including HSBC and Bank of Montreal. During this time he worked in Operations and then as a trader; running books in FX, bonds and derivatives.

This credit risk in derivatives course trainer held the position of Non-Executive Director of Cazenove’s Derivative Oversight Committee for many years. Acting as a member of the committee in a general consultative capacity to assess the firm’s derivative capabilities and risks.

He has also presented at JPMorgan Forums in London, speaking on topics such as the Benefits and Risks of Derivatives. He along with representatives from the FSA, law firms and hedge funds, were asked to give their views on the risks of derivatives to 150/200 Directors and senior managers from the top investment firms in the UK.

In addition to his training activities, he has undertaken various consultancy projects, such as an in-depth collateral risk assessment at a major European Investment bank.

The trainer delivers courses which focus on providing a practical and in-depth understanding of the markets from a Trading, Operations and Risk viewpoint. His courses are interactive and stimulating, offering delegates the opportunity to participate in an environment which encourages free discussion of the real issues faced in the workplace.

He has run courses worldwide including Amsterdam, Dublin, London, New York, Hong Kong, Singapore, Jakarta, Johannesburg, Delhi, Accra and Johannesburg.

  • Credit risk in derivatives training teaches Counterparty Risk and how it occurs in derivatives. We look at individual derivative types and examine how Market Risk creates Credit Risk.
  • Understand how credit risk in Futures is largely mitigated through margining. Learn what risks remain in the “real world”.
  • How credit risk occurs in all the major derivative products.
  • Appreciate how credit risk exposure mitigation can reduce risk. This includes netting, unwinds, collateral transformation, margins, and trade compression.
  • Gain knowledge of derivatives Credit Risk exposure calculations, such as Expected Exposure. Potential Exposure, CVA and CVX.
  • How Electronic trading through SEFs/OTFs and the CCP has reduced Credit Risk by over 95% for “Cleared trades”.

  • Although mathematics is essential in credit derivative markets, all case studies and exercises are explained with the use of a simple calculator. You DON’T need to be a mathematician to understand!
  • This credit risk in derivatives course will allow you to become familiar with the major derivative products and how they are used by the bank and its clients.
  • You will also learn about “Counterparty Risk”, the increase in “Multilateral Netting” through “CCPs”, the use of collateral and other methods. Which are a crucial tool in the reduction of credit risk derivatives.
  • We will drill down into how CVA (Credit Value Adjustments) are made and the role of DVA (Debit Value Adjustments) and FVA (Funding Value Adjustments) in pricing today.
  • We will also cover all the important products and topics including Futures, IRS and CDS.
  • Options and Collateral as well as ISDA documentation.

This credit risk in derivatives course is a 'must-know' for:

  • Asset Managers
  • Credit Risk
  • Middle Office
  • Compliance
  • Anyone wanting to understand Derivative Products and their Credit Counterparty Risk

Redcliffe Training's credit risk in derivatives course is designed to give you an in-depth understanding of how Credit Risk occurs in derivative products. How the products work on a practical basis, with illustrations of how counterparty credit risk occurs and how it can be measured. The credit mitigation techniques are fully explored.

Number of places:

£ 2380.00

Discounts available:
Virtual Class

  • 2 places at 30% less
  • 3 places at 40% less
  • 4 places at 50% less
  • 5 places at 55% less
  • 6+ places at 60% less
  • Select the number of course places and dates to automatically calculate the discount
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