Course dates
This 4-day course reviews credit models as implemented in major financial institutions while pointing to significant improvements made in light of the financial crisis.
The course covers four building blocks of credit modelling:
- Internal credit scoring (rating) models
- Pricing models for credit derivatives and structured credit products
- Counterparty risk assessment models based on potential future exposure at default
- Capital allocation models for credit risk, also known as credit portfolio models
- For each building block, the course dedicates one full training day.
Each block starts with a concept review of the models applied and an assessment on how they fared during the crisis of 2007-2009. Key potential areas of model improvements as well as back / stress testing mechanisms are being discussed in an interactive way.
Course participants will be challenged via live case studies to apply their experiences for improving models. The trainer will moderate the discussions while soliciting creative solutions from the participants and will draw conclusions – which will be compared against industry best practices.
Who should attend?
The course will be of value to professionals in the following areas:
- Financial Risk Managers
- Credit Managers
- Financial Engineers
- Financial Industry Regulators
- Auditors
- Credit Portfolio Managers
- Asset Managers
Day 1
Internal rating models
Brief overview of the current “sub-prime” triggered financial crisis and the impetus of reviewing credit risk management practices
Case study of the “snow-balling effects”.
Customer credit rating models
A synoptical perspective on internal credit rating models
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Heuristic / expert models
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Classic rating questionnaires
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Qualitative systems
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Expert systems
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Fuzzy logic systems
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Statistical models
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Multivariate Discriminant Analysis (MVA) – Altman´s Z & ZETA Models
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Regression models: logit & probit
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Artificial neural nets
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Causal models
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Option pricing models – KMV Credit MonitorTM
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Cash flow simulation models
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Hybrid models
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Models used by rating agencies
Requirements for an acceptable credit rating model – auditors Perspective
Suitability of credit rating models
Examples of rating models used by key industry players
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Retail customers
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Corporates
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Financial institutions
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Sovereign borrowers
Backtesting and validating credit rating models
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Discriminatory measures
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Gini coefficient
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CAP curve
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ROC Curve
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AUROC
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Pietra index
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Bayesian error rate
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CIER Index
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Kolmogorov-Smirnov Test
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The calibration process
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Brier score
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Reliability diagrams
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Calibration backtesting
Management challenges in light of the current crisis
Performance review and improvement opportunities – group discussion
Day 2
Pricing credit instruments
Classical components of credit risk measurement
Estimating default probabilities
- Mathematical underpinning
- Definition of default / “credit event” (examples & discussion)
- Marginal vs. Cumulative vs. Average default rates
- Transition probabilities – properties, examples
- Actuarial estimating methods
- Market implied default probabilities – term structure of spreads
- Case study on bond spreads interpretation
- Inferring default likelihood from equity prices (Merton model)
Recovery rates & LGD
- Statistical estimates
- Market implied recovery rates
- Overview of credit products:
Cash products (loans & bonds, incl the syndicated & leveraged loan market)
- Credit derivative products
- Credit default swaps
- First (of basket) to default
- “NTH” to default
- CDS indices
- Total rate of return swaps
- Credit spread forward options
- Credit spread options contracts
Pricing and hedging credit derivatives
- Actuarial approach
- Spread methods
- Equity pricing methods
- Examples
Modelling default correlations – copula based models
Intensity (reduced form) models
Structural models (KMV)
Factor models
Structured credit products
- Credit linked notes
- Collateral debt obligations
- Balance sheet vs. Arbitrage CDOs
- Cash flow (“funded”) vs. Synthetic CDOs
- Managed vs static CDOs
- Market value CDOs
- Other CDO related structures
CDO squared
- CDS on Abs
- CDS on CDOs
- CPDOs (“Constant Proportional Debt Obligations)
What went wrong ? (Correlations/ copula instability ; beyond ?)
New grounds : migration velocity models ?
Day 3
Counterparty risk models
Estimating exposure at default
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Current exposure vs. Potential exposure
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Estimating potential exposure by instrument type
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Time profile of expected exposure
Case study: expected vs. Maximum exposure for an interest rate swap
Case study: exposure profile for an FX swap
Exposure modifiers
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Marking to market (brief discussion on IAS stipulations)
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Margins
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Collateral
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Exposure limits
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Re-couponing
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Netting agreements (gross replacement value vs. Net replacement value)
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ISDAtm master netting agreements
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Basel II & regulatory recognition
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Credit triggers
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Time puts
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Modelling PFE
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PFE profile
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Impact of multi-party netting & collateral (case study)
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Monte Carlo simulation methods
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Roll-off risk
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Collateral models – best practices
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Mitigating counterparty risk
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Credit derivatives as hedging instruments
Case study for a “wrong way exposure”
Day 4
Portfolio models
Credit portfolio models
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modelling default correlation in portfolio models
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Deffault vs migration based models
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Measuring credit VaR
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Factor models
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Industry portfolio models
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Fitting it all together – RaROC models
Back to the beginning: what went wrong?
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Comments on recent market developments: Lehman, Fannie Mae, AIG, etc.
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Conduit structures
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SIVs
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Rating agencies involvements
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The role of the fed & the regulators
Lessons to be learned for risk managers and credit analysts
Conclusions and discussions
Frankfurt Hotel, Frankfurt, Germany
This programme takes place on a non-residential basis at a central Frankfurt hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.
Hotels
Le Meridien Hotel
Wiesenhuetten Platz 28-38
Frankfurt, Germany
Quality Rating: 4 star
http://www.frankfurt.lemeridien.com
Sheraton Hotel & Frankfurt Hotel Towers
Rhein-Main Airport
Frankfurt, Germany
Quality Rating: 5 star
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Andre Horovitz
In over 20 years of financial services experience, Andre Horovitz has gained insights into industry best practices of some of the leading financial institutions in the world.
Andre started his banking career at Lehman Brothers as an Investment Banking Associate in 1988. He was responsible for pricing, developing hedging strategies and marketing exotic interest rate derivatives.
He has subsequently held senior executive positions at Oliver, Wyman & Co., Commerzbank, HVB Group (currently part of Unicredit), Erste Bank, Credit Suisse and Nagler & Company.
At Erste Bank and Credit Suisse, Andre held the positions of Chief Risk Officer and was a member of the top management committees of the respective institutions.
He is a frequent speaker at various risk management conferences and a contributor to various industry journals. He has held teaching assignments in financial risk management at the Technical Universities of Munich and Vienna.
Andre has been training banking executives for over 8 years via engagements with prestigious organisations and has lectured on a variety of risk management related topics at all levels (introductory to advanced). His areas of expertise cover all classes of financial risk management, including the important link to overall institutional strategy.
As an instructor, he is known for combining the theoretical underpinnings of financial risk management methods with real life practical case studies drawn from his working experience as a risk management executive. He likes to motivate course attendees to develop practical and implementable solutions to problems via practical case studies.
Andre holds a Diploma in Hydraulics Engineering from the Technical University of Bucharest and an MBA in Finance from New York University´s Stern School of Business. He is a Licensed Professional Engineer in New Jersey and Michigan, a Registered Securities Representative in New York and a GARP (“Global Association of Risk Professional”) certified Financial Risk Manager (“FRM®”).
Courses run by this instructor
Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.
4-7 Jun 2012 (Paris, France)
19-22 Nov 2012 (Paris, France)
A 4-day expert emerging market risk analysis training course designed to equip delegates with the skills to analyse and mitigate country risk. Including techniques for the analysis of financial institutions in emerging markets.
2-6 Jul 2012 (Geneva, Switzerland)
As a result of the recent banking crisis in the West, the Accord has evolved into what was called Basel II.5 and is now called Basel III. This intensive, 5-day course will discuss, in detail, the significant changes to the Accord, and how they will impact on the business model of your bank.
3-5 Jul 2012 (Prague, Czech Republic)
This innovative, 3-day course will provide delegates with up-to-date information and refreshed skills in order to efficiently and effectively manage corporate loan workouts and financial restructuring to minimise market risk and secure strong returns.
18-20 Sep 2012 (Amsterdam, Netherlands)
A 3-day intensive training course featuring the uses, benefits, and advantages of credit and political risk insurance. The course places great reliance on practical work including case studies, which will point out the importance of detail in the whole area of credit experience.
10-13 Jul 2012 (Paris, France)
11-14 Dec 2012 (Paris, France)
This unique, 4-day training workshop addresses the fundamental causes of risk and provides delegates with a simple, systematic control and management programme to achieve control.
10-12 Dec 2012 (Paris, France)
Value-at-Risk is the accepted methodology for assessing risk worldwide. This course will give you a thorough understanding of VaR, and how it fits it with other popular methodologies for market, liquidity, credit and operational risk. Dr. Flavell will show you how to use VaR for reporting purposes and for the setting of risk appetite.
Other topics of discussion include VaR-related lessons from the economic crisis and VaR stress testing (recently introduced by the Basel Accord).
3-7 Sep 2012 (Paris, France)
The aim of this 5-day course is to teach delegates how to model and analyse corporate credit risk, how to assess structural and documentation risk and to give an overview of dealing with NPLs.
2-5 Jul 2012 (Prague, Czech Republic)
This comprehensive 4-day introductory course on credit risk management is designed to give participants the basic skills to understand the credit approval process in a new credit environment. This course has the advantage of using many real-life case studies, giving delegates the opportunity to apply their theoretical knowledge to actual deal analysis. Delegates will examine deals in detail and, under instruction from the professor, they will analyse cases from both lender and borrower perspectives.
2-4 Jul 2012 (Paris, France)
5-7 Nov 2012 (Paris, France)
The primary purpose of this intensive 3-day course is to provide an introduction to how sovereign risk can be assessed, predicted and sometimes mitigated. The programme uses a wide range of case studies of sovereign crises, from the 1990s (Asia, Argentina, Russia etc), through to the more recent crises (in parts of Western, Central and Eastern Europe, Dubai etc) to illustrate how key macro-economic, indebtedness and other indicators can be used to assess and predict
changes in sovereign credit profiles.
29-31 Aug 2012 (Paris, France)
A practical and highly interactive 3-day training course, incorporating numerous case studies, that provides delegates with a thorough understanding of the syndicated loan market, its process and potential
24-27 Sep 2012 (Prague, Czech Republic)
This interactive 4-day training course will help delegates to find the most efficient ways to control credit losses and to identify opportunities to generate new business.
15-18 Oct 2012 (Paris, France)
This 4-day program will explore ERM frameworks, identifying the weaknesses in risk management programs and focusing on strenghts. Basel II and Basel III will be presented, along with the framework they provide.
25-28 Jun 2012 (Vienna, Austria)
This programme has been designed to guide bankers through the credit process and to give practical advice on what to do if problems occur.
27-29 Aug 2012 (Vienna, Austria)
Upon completing this 3-day workshop, delegates will understand how to build a flexible analysis model to restructure existing debt.
24-27 Sep 2012 (Paris, France)
Many banks are now compliant with Basel II. What next? As a result of the Western banking crisis, there are many changes proposed to the Accord, commonly known as Basel III.
This 4-day course addresses the broader issues of risk in financial institutions and the implementation of the more advanced methods currently permitted in the Accord.
The course will discuss some of the changes that have been proposed to the Accord since the Western banking crisis of 2007-9 and other developments in risk management.
Course dates