Credit Derivatives. Including the Subprime Crisis, CDO Problems, and Banks' Exposure to Risk. Seminar Maio 2008 Lisbon Portugal

Transcrição

1 Instituto de Formação Bancária IFB The Portuguese Bank Training Institute Associação Portuguesa de Bancos nd 2ª Edição/2 Ed ition Actualizad a/revised Seminar Credit Derivatives Including the Subprime Crisis, CDO Problems, and Banks' Exposure to Risk Maio 2008 Lisbon Portugal

2 IFB The Portuguese Bank Training Institute The Portuguese Bank Training Institute (IFB) started its activity in 1980 and it is the body of the Portuguese Bank Association (APB) responsible for professional training. The Institute mission is to strengthen the culture of the banking profession and foster the development of the Portuguese financial sector by qualifying its human resources. Today, the IFB is a solid reality in the field of specialised training in Portugal, offering trainees flexible training methods, thereby enriching their learning process by creating a permanent link between the academic and professional components. It has a multidisciplinary team of pedagogical experts that produces teaching materials suited to the institute's different training methods: classroom teaching, apprenticeship courses and distance learning (paper-based, e-learning and b-learning). The IFB's activities also include consultancy in Portugal and abroad and high-quality seminars organization. ACF Consultants ACF Consultants, based in London, has an established reputation for providing first rate training and consultancy to banks and other financial institutions, since ACF has extensive knowledge, experience and expertise in the areas of banking and finance, and are global leaders in the development of financial simulations and the application of innovative technology-based training techniques. ACF Consultants set exacting standards. Only employ consultants who have wide-ranging and relevant experience, coupled with exceptional teaching and communications skills. IFB Instituto de Formação Bancária O Instituto de Formação Bancária (IFB) cuja actividade se iniciou em 1980, é o órgão da Associação Portuguesa de Bancos (APB) para a formação profissional. A sua missão é fortalecer a cultura da profissão e, através da qualificação dos seus recursos humanos, apoiar o desenvolvimento do Sector Financeiro Português. Hoje o IFB constitui uma sólida realidade no panorama da formação especializada em Portugal, colocando à disposição dos formandos metodologias de formação flexíveis que permitam enriquecer o processo de aprendizagem de cada um, pela possibilidade de permanente ligação entre a componente "Académica" e a "Profissional". Possui uma equipa técnico-pedagógica que trabalhando sobre o eixo da multidisciplinaridade, produz materiais didácticos adequados às diferentes metodologias de formação praticadas na casa: Presencial, em Alternância e o Ensino a Distância (base-papel, e-learning e b-learning). As actividades do IFB incluem, ainda, a consultoria em Portugal e no estrangeiro e a organização de seminários altamente especializados. ACF Consultants A ACF Consultants, estabelecida em Londres desde 1981, proporciona formação profissional e consultoria de elevada qualidade para bancos e outras instituições financeiras. A ACF é detentora de extenso conhecimento e experiência nas áreas da banca e das finanças. É reconhecida internacionalmente como líder do desenvolvimento e utilização de simulações técnico-informáticas sofisticadas para efeitos de formação profissional avançada, nomeadamente no domínio da Gestão de Activos e Passivos (ALM). A ACF rege-se por exigentes critérios. Apenas recorre a consultores que possuam uma ampla e relevante experiência aliadas a excelentes qualidades de comunicação e ensino.

3 Seminar Objectives The principal objectives of the seminar are to: Explain the various credit derivatives structures and products Provide delegates with a clear understanding of how credit derivatives can be used in practice to manage and hedge credit risk Show how credit derivatives add value for buyers and sellers To provide an intuitive insight into the way in wich these credit derivatives are priced Discuss recent issues like the subprime crisis, Asset-Backed Commercial Papers (ABCPs), Structured Investment Vehicles (SIVs), and Collateralized Debt Obligations of Asset-Backed Securities (CDO's of ABS's) Teaching Methods The seminar will provide an intensive blended-learning solution combining: e-learning Classroom training Simulation Blending these three elements will produce an extremely motivating and totally integrated program which is more effective and faster than traditional classroom and case study methods. Firm foundations will be laid with highly interactive e-learning and dynamic tutor-led training. Practical exercises and simulation will be woven through the program to allow delegates to put theory into immediate and realistic practice. After attending our programme, delegates will retain the knowledge they have acquired, and will be able to apply it to immediate and practical effect. Pre-Course Assessment e-learning Tutor-Led Training Simulation Blended Learning End of Seminar Test Objectivos do Seminário Os objectivos principais do Seminário são: Explicar as várias estruturas e produtos existentes na área dos derivados de crédito Fornecer conhecimentos práticos sobre a utilização dos derivados de crédito na gestão e hedging do risco de crédito Demonstrar como os derivados de crédito constituem valor acrescentado para compradores e vendedores Analisar o estabelecimento de preço dos derivados de crédito Discutir situações recentes como a crise subprime, Asset-Backed Commercial Papers (ABCPs), Structured Investment Vehicles (SIVs) e Collateralized Debt Obligations of Asset-Backed Securities (CDO's of ABS's) Metodologia O Seminário funciona em blended-learning combinando três metodologias: e-learning Formação em sala Prática simulada Estes três elementos permitem criar um programa totalmente integrado e bastante motivador que demonstra ser mais eficaz para o desenvolvimento e criação de competências individuais. Estas competências serão devidamente consolidadas pela interacção obtida durante o Seminário, na medida em que será combinada a formação em sala, com a análise de case studies e o recurso à prática simulada. Esta metodologia permitirá aos participantes uma aplicação directa dos conhecimentos adquiridos no seu contexto profissional. Pre-Course Assessment e-learning Tutor-Led Training Simulation Blended Learning End of Seminar Test

4 Simulation The seminar features ACF's Global Trader seminar which now has the capability to price, trade, and structure credit derivative products giving delegates hands-on experience of the practical issues arising from using credit derivative instruments. Who Should Attend Corporate Banking Credit Staff Credit Portfolio Managers Risk Managers Loan book and Counterparty Credit Exposure Managers Treasury Staff Involved in Structuring Investment Managers Dept Capital Market Professionals Equity Capital Market Professionals Traders Dealers Corporate Sales Financial Controllers Key Note Speaker Lawrence Galitz has a global reputation as one of the best seminar leaders in the field of banking, finance, and ALM. A dynamic and gifted trainer, with wide-ranging knowledge and experience, Lawrence Galitz is exceptionally skilled in the art of knowledge transfer. He has extensive experience in this area and has consulted for a wide range of commercial and central banks. Lawrence Galitz was the headmaster of the Insurance, Bank and Finance Studies in the University College, University of Wales, Bangor, UK. Language The Seminar will be given in English (no translation available). Certificate All participants will receive a certificate. Location IFB The Portuguese Bank Training Institute Av. 5 de Outubro, 164, Lisbon, PORTUGAL Simulação O Seminário utiliza, na componente de recurso à prática simulada, o programa Global Trader que possui a capacidade para definir o preço, negociar e estruturar derivados de crédito fornecendo aos participantes uma experiência em primeira mão dos aspectos práticos que derivam da utilização dos derivados de crédito. Destinatários Corporate Banking Credit Staff Credit Portfolio Managers Risk Managers Loan book and Counterparty Credit Exposure Managers Treasury Staff Involved in Structuring Investment Managers Dept Capital Market Professionals Equity Capital Market Professionals Traders Dealers Corporate Sales Financial Controllers O Orador Lawrence Galitz tem uma sólida reputação como um dos melhores especialistas na área Bancária, Financeira e de ALM. Como formador dinâmico e comunicativo que é, com um vasto conhecimento e experiência, Lawrence Galitz desenvolveu competências técnico-pedagógicas excepcionais. É, ainda, consultor de numerosos bancos e instituições financeiras em projectos de investigação. Anteriormente, Lawrence Galitz foi o responsável da área de estudos em Seguros, Banca e Finanças na University of Wales, Bangor, R.U. Língua Utilizada No Seminário utilizar-se-á exclusivamente a língua inglesa, não sendo disponibilizado serviço de tradução simultânea. Certificado Será emitido um certificado de participação. Local IFB Instituto de Formação Bancária Av. 5 de Outubro, 164, Lisboa, PORTUGAL

5 Seminar Content / Programa All practical sessions are highlighted like this: Case study Workshop or Simulation Introduction to Credit Derivatives The seminar starts by introducing the credit derivatives market, and presents some of the latest statistics on users and the market itself. Principles and functions of credit derivatives Types of credit derivatives The credit derivatives market Participants and their roles Motivations for using credit derivatives Single Name Credit Derivatives The program starts by looking in some detail at the dominant credit derivatives product the credit default swap. After looking at the practical aspects of this important financial tool, we finish this section with a brief overview of the other single-name CD products. Credit default swaps Terms and definitions ISDA agreements Credit events Settlement types Deliverable obligations Market and trading conventions Other products Asset swaps Credit-linked notes (CLNs) Total return swaps Credit spread products Using Credit Default Swaps This section presents some client-focused examples showing how different types of clients can use CDS s to reshape risk exposure, to enhance yield, or to improve utilisation of credit and capital resources. Who uses CDS s? CDS applications Managing credit risk exposure Hedging default risk Enhancing yield Providing market access Accessing diversified portfolios Implementing directional trades Exploiting relative value Arbitrage Curve trades Using credit default swaps Trading Simulation In this session, delegates will use the Global Trader simulator to trade and manage a book of credit default swaps. The session will explore some of the dynamics of CDS prices, as well as the practical illustration of curve risk and the SDV01. Index Products The evolution of widely-accepted market standard indices has helped to increase liquidity and transparency in the credit derivatives market. This section explains how the indices are created, and how they can be applied. The CDX and itraxx indices Geographic and sector coverage Index construction Who uses indices? Index trading applications Index trading example Pricing Credit Default Swaps Here we provide delegates with an intuitive understanding of how CDS s are priced, dealing with default and survival probabilities, recovery rates, and fair-value pricing. These concepts are all illustrated by hands-on pricing examples, so delegates gain a real appreciation of the issues. Overview of CD pricing approaches CDS and asset swaps the basis An intuitive approach to CD pricing Credit risk and credit spreads Bootstrapping default probabilities Implied default and survival probabilities Recovery rates Obtaining CDS premiums from default probabilities Bootstrapping default probabilities from CDS premiums The CDSW screen Portfolio Credit Derivatives The seminar next looks at portfolio CD products, starting with a discussion of correlation, and its importance in this area. We first introduce the FTD swap a logical extension of the singlename product, but the majority of time will be spent on CDOs, both funded and especially synthetic. Practical exercises illustrate the design and application of CDOs. The importance of correlation Portfolio / basket credit derivatives First-to-default swaps 2nd-to-default and other variations Collateralised Debt Obligations (CDOs) Selecting assets for securitisation Balance sheet CDOs CDO structures and the role of the SPE Senior, mezzanine, and equity pieces The waterfall of cash flows Designing a CDO structure Synthetic CDOs How synthetic CDOs work Partial vs. fully synthetic CDOs Advantages of synthetic securitisation Conduits and SIVs Pricing Portfolio Credit Derivatives In this section we explain how CDO products are priced, and why correlation is so important. Principles of correlation pricing Pricing a first-to-default credit default swap and other correlation CDS s Tranches and CDOs (synthetic and cashflow) Pricing a Synthetic CDO Tranched CDO and CDX Trading In this final section we discuss and demonstrate how tranched CDO and CDX structures work, and how they can be used in practice to enhance yield and to take a view on correlation. CDO and CDX tranches Risk/return characteristics of each tranche Characteristics of the equity piece Characteristics of the mezzanine pieces The impact of correlation Tranche pricing methodology The concept of delta Creating tranched CDO structures Using a tranched CDO structure The 2007 subprime crisis, CDOs of ABSs, & tranched CDOs performance ACF Consultants (London)

6 Instituto de Formação Bancária IFB The Portuguese Bank Training Institute Associação Portuguesa de Bancos A full member of Entidade Formadora Acreditada More Information / Para mais informações: 003_0081_V04 Ana Margarida Soromenho Av. 5 de Outubro, 164, Lisboa, PORTUGAL Tel.: (+351) Fax: (+351) seminarios@ifb.pt Copyright 2008 by IFB/APB