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FINANCIAL MARKET COURSES

Swaps - Credit Exposure

This course provides an insight into the credit issues that arise in the trading of interest rate and currency swaps. It focuses on the way in which future credit exposure can be generated, how estimations of the exposure can be made, and how the future exposure can be reduced through different forms of credit enhancement. It also briefly addresses the issues raised by the management of these exposures.

  • OBJECTIVES

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

    Describe how credit exposure is generated in an interest rate or currency swap, and how it is a function of the movement in the underlying market variables

    Outline the complexities involved in measuring the level of credit exposure

    Explain how credit exposure can be reduced

    Describe how credit exposure is priced and managed by different institutions, and the difficulties that these processes generate

  • COURSE OUTLINE

    Topic 1: Fundamentals of Credit Exposure

    Separating Pricing from Exposure

    Exposure in the Event of Default

    Current & Expected Exposure

    Types of Exposure

    Measuring Credit Exposure – An Example

    Factors that Change Exposure

    Interest Rate & Currency Swaps

    Topic 2: Measuring Exposure

    Volatility & Correlation

    The Order of Magnitude

    ‘Wrong-Way’ Exposure

    Topic 3: Netting & Credit Enhancement

    The Portfolio Effect

    What can be netted?

    Is Netting Enforceable?

    Marginal Exposure

    Credit Exposure & the Development of the Swaps Market

    Collateral

    Multilateral Credit Enhancement

    Topic 4: Pricing & Management

    Interpreting Credit Exposure Measures

    Charging for Credit Exposure

    Paying for Credit Exposure

    Non-trading Counterparties

    Methods of Charging for Credit Exposure

    The Swaps Desk & Credit Exposures

    Resources

    Reliability of Estimation

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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