Measuring and mitigating counterparty default risk has been one of the risk management challenges for risk professionals in the past 10-15 years.
Since the global scale trading of OTC derivative contracts, there have been very few situations (Drexel, LTCM, Barings, Lehman Brothers) where practitioners could have tested the effectiveness of ISDA Master Netting Agreements and collateral agreements in stressed markets. The financial crisis that commenced in 2007 has offered an unprecedented laboratory for such research.
The new changes in the Basel Capital Accord (“Basel III”) have imposed major challenges to treasuries and derivative market makers in most banks (regulated under Basel III). As a consequence of the global financial crisis, most derivative market makers have transgressed to transacting most derivatives under bilateral ISDA CSA templates covering bilateral collateral provisions along with daily margining beyond the ubiquitous netting features. As a consequence, as collateral typically earns the overnight rates while most derivatives are (3 to 6 months) LIBOR based, a derivative transaction (even if fully hedged) would be conducive to basis risk – which gets penalised with additional regulatory capital under Basel III. Consequently, many dealers have taken the pains to “re-swap” their positions (or portfolios) to the OIS curves – in an attempt to eliminate the basis risks inherited.
Above and beyond, as the Basel III credit conversion factors for derivative transactions became rather “gruelling” in terms of regulatory capital coverage, many Banks have created special CVA desks aiming to optimise the capital levy associated with the counterparty risk taken (as measured by the CVA – “Credit Valuation Adjustment”).
This two-day workshop provides an overview to industry practitioners on the role, functionalities, inherent methods and processes of a modern CVA desk embedded in a derivatives trading unit. The course will focus on methodologies, limit systems and processes along with day to day management techniques used by leading global financial institutions. At the end of the seminar, participants will be able to better assess the effectiveness of their own legacy counterparty risk processes and possibly take away ideas on how to enhance their systems to make them “state of the art” and compliant with the emerging regulatory stipulations on capital coverage (“Basel III”).
Who is this course for?
Credit Risk Managers
Trading CVA Professionals
Counterparty Risk Managers
Risk IT Professionals