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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 three-day course

Day One

Overview of Derivatives / Major Market Players

Derivative Types

  • ETD v OTC
  • Futures v Forwards
  • Options

Exercise: P&L on futures contracts

Exercise: Futures Strips

Case study: 

  • Leverage with Index Futures
  • Hedging with Index Futures

Cash and Carry Trades

Case study: how cash and carry works

Forward Interest Rate

Exercise: Currency Forward - calculating the forward points

Case study: Hedging with NDFs

Option Basics

  • Terminology
  • Hockey Stick Diagrams

 Option Settlement and Credit Counterparty Risk

Pay off / P&L

Binomial Pricing

Black Scholes Model

  • Basic understanding of how it works
  • Why is it so useful
  • Overview of the Greeks (Delta, Gamma. Vega, Theta, Rho etc.)

FRAs pricing

Exercise on FRA price calculation and settlement

  • The Yield Curve


  • Understanding IRS and their use
  • Pricing and IRS

Exercise: calculating the P&L

CDS overview

  • How CDS trade

Exercise: Portfolio Credit Risk

Day Two

How Counterparty Risk is different for Derivatives

Credit Risk

  • Default Risk
  • Corporate Credit Ratings

Credit Spread Calculations

Exercise: considering credit ratings and credit spreads

Derivatives and credit risk

  • Herstatt Risk and CLS

  Counterparty Risk Calculation and FX Forwards

Exercise:  valuing a counterparty exposure on an option

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)

Day Three

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

  • CVX comparison table


  • Value at Risk explained
  • Monte Carlo Methods
  • Wrong-Way Risk

Case study

Hedge Accounting

  • IFRS 9
  • Fair Value
  • Cash Flow
  • Net Investment

 Course Quiz:

Delegates take a quiz covering the whole course to ensure their understanding. We mark the quiz and finish by discussing any areas delegates may have found difficult so that they all leave with a thorough understanding of the topics covered.

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

The trainer has run courses all over the world including Amsterdam, Dublin, London, New York, Hong Kong, Singapore, Jakarta, Johannesburg, Delhi, Accra, Johannesburg etc.

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.

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.

Redcliffe’s 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.

The trainer 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, hedge funds etc. 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.

  • 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 still remain in the “real world”
  • Gain an understanding of how credit risk occurs in all the major derivative products.
  • Appreciate how credit risk exposure mitigation can reduce risk. Netting, unwinds, collateral transformation, margins, trade compression
  • Gain knowledge of derivatives Credit Risk exposure calculations, such as Expected Exposure. Potential Exposure, CVA and CVX
  • Will look at how the risk of derivatives are accounted for and have an overview of IFRS 9 rules

  • Although mathematics is essential in these credit derivative markets, all the 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’s
  • We will also cover all the important products and topics including Futures, IRS, CDS,
  • Options and Collateral and 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

The credit risk in derivatives course is designed to give participants 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 capital costs and credit mitigation techniques are fully explored.


Have this course presented In-House

  • On a date, time and in a location of your choice
  • Topics expanded or deleted to your bespoke requirements

Have this course pre-recorded

  • Full course recording edited exclusively for your company
  • Files converted to enable housing on your LMS
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