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FINANCIAL MARKET COURSES

Counterparty Credit Risk (CCR) – An Introduction

The global financial crisis focused attention on risks beyond 'simple' measures of credit exposure. Among many other issues, the crisis highlighted the problem of counterparty credit risk (CCR) when the demise of an institution causes losses in financial instruments where the credit of the counterparty is not referenced directly. In particular, the linkages between derivatives counterparties and the associated credit risks were at the root of concerns over the collapse of Lehman Brothers and the bailout of AIG.

 

This course analyzes how CCR is generated within financial markets and shows how the scale of exposure can be initially assessed.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Distinguish counterparty credit risk (CCR) from 'traditional' credit risk

    Identify the key sources of CCR

    Understand the key terms used in the measurement and calculation of CCR

  • COURSE OUTLINE

    Topic 1: Managing Liquidity Risk

    Traditional Credit Risk

    CCR and Market Instruments

    CCR and Option Payments

    Counterparty Credit Risk Management

    Multiple Risk Factors

    OTC versus Exchanges

    Special Counterparties

    Topic 2: Identifying Counterparty Credit Risk

    Key Inputs in CCR

    o Exposure at Default (EAD)

    o Probability of Default (LGD)

    Gross Transaction Exposure

    Derivatives Exposures

    Forward Values

    Cash Flow Timing

    CCR Exposures

    Correlation

    Wrong Way Risk

    Complacency

    Topic 3: Key Terms

    Probability of default (PD)

    Recovery Rate (RR)

    Mark-to-Market (MTM) value/replacement cost

    Expected, average, and peak exposure measurements

    Credit valuation adjustment (CVA)

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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