Credit Exposure of Derivatives

  Intermediate CPD: 14 hours   2 days   Live


Credit Exposure of Derivatives

The Credit Exposure of Derivatives course is an intensive two-day course focusing on the potential losses arising from derivatives portfolios exposed to credit and counterparty risk. The program will blend instructor-led training sessions with practical hands-on workshops and mini-cases using pricing tools, risk analysis, and simulation. A central part of the program will be an in-depth case study based on banks’ own experiences.

Learning Outcomes

By attending this course, you will:

  • Develop a solid conceptual understanding of the methods used to estimate credit exposure on derivative transactions
  • Analyse the characteristics of credit risk arising from swaps and other derivative products
  • Gain an intuitive awareness of the level and magnitude of credit risks
  • Understand the methods used for calculating Initial Margin (IM) for derivative positions
  • Examine the credit exposure from exotic and more complex derivative transactions
  • Explore practical examples illustrating each of the concepts covered

Who Should Attend

Risk managers and those concerned with monitoring, managing, or regulating the risk arising from derivatives transactions.


A working understanding of derivatives.

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Seminar Content

Measuring and Managing Risk

Measuring market risk

  • Identifying overt and covert risks
  • The VaR principle applied to market risk
  • Dollar Earnings at Risk (DEaR)
  • The portfolio approach

Links between:

  • Credit risk and market risk
  • Liquidity risk and other risks

Managing risk

  • Review of collateral and collateral management
  • Review of operational risk
  • Settlement risk, netting, and DVP
  • Legal risk and legal Issues
  • Structuring to reduce risk
Calculating Credit Exposure – Part 1
  • Components of credit exposure: monetary risk and event probability
  • Financial exposure from derivatives
  • Average vs. peak exposures
  • computer Modelling session using a credit risk pricing system
Review of Swaps and Swap Credit Risks
  • Interest rate, currency, and equity swaps
  • Swap cash flows
  • Principles of swap pricing and valuation
  • Credit risk of swaps
Major Case Study

In this important section of the program, participants will be split into small teams and be given dossiers summarising proposed transactions for a small number of clients. The task for each team will be to identify and assess the credit risk, to consider and prepare recommendations, and then to present these recommendations formally. At the end, the instructor will debrief the analysis, and present their own assessments.

Calculating Credit Exposure – Part 2
  • Drivers of exposure
  • Potential vs. actual credit exposure
  • Impact of market risk on credit exposure
  • Relatedness vs. unrelatedness
  • What do the numbers actually mean?
  • computer Calculating credit risk from distributions of probability and LGD
  • Initial Margin (IM) calculations for interest rate swaps
Pricing Credit Risk
  • Overview of credit default swaps (CDS)
  • Obtaining default probabilities and recovery rates from CDS
  • How to price credit risk using CDS
  • computer Calculating the cost of credit risk
Credit Derivatives
  • Types of credit derivative
  • Credit events
  • Using credit derivative swaps
  • The credit risk of credit derivatives
Exotic Derivatives
  • Credit risk in exotic and complex transactions
  • What makes an exotic transaction exotic?
  • Credit and liquidity risk implications for exotics
  • Exotic options
  • Structured products
  • Examples of exotic transactions
  • computer Assessing credit risk for an exotic derivative

When and Where
   2 May 2024 - 3 May 2024
   New York

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Other Dates and Locations
Search for Credit Exposure of Derivatives in our course schedule for alternative dates and locations where this course is offered.



Registration Information

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