• Students shall understand and be able to apply the learned tools in real life examples from the financial industry and capital markets
• Students will learn a hands on understanding of real world examples of how counterparty credit risk is managed and measured
• After this course students will have discussed the following main points:
  • How to calculate counterparty exposure for derivative portfolio
  • How to calculate Credit Valuation Adjustment (“CVA”) and Debt Valuation Adjustment (“DVA”)
  • What is Funding Value Adjustment (“FVA”)
  • How the Financial Industry manages and hedges counterparty credit risk (i.e. difference between a Risk Management- and Trading- Approach)
  • How to define a hedging strategy for a sample portfolio to reduce risk for a sample bank  
  • How to apply a multi-curve discounting approach compared to a single curve discounting approach
  • What is a CSA and ISDA contract and how are these contracts negotiated and applied in a financial transaction
  • What is a close out valuation
  • How can a portfolio be hedged applying a standardized risk-off/VaR analysis
  • How does the regulation of a Central Counterparty change the financial markets and the day-to-day business of trading activities of financial institutions

In this course the students will learn how counterparty credit risk:

1. changed the financial markets
2. changed the way risk management departments of global financial institutions manage risk and
3. how financial institutions measure and hedge counterparty credit risk.

COURSE METHODS AND ORGANISATION

Lectures will be organized around specific prepared presentation material and a given set of relevant papers and further book chapters. Students are not forced to read further papers or books to understand the topics discussed in class. There will be class assignments and a final exam for this course. Grading will be based on class participation, assignments and final exam.

(optional for further detailed knowledge in Counterparty Credit Risk)

• Counterparty credit risk and credit value adjustment: A continuing challenge for global financial markets - Second Edition by Jon Gregory, Publisher: John Wiley & Sons (31 August 2012) [The first Edition has the shorter name "Counterparty credit risk" and is available in the TU/FAM-library].
• Counterparty Credit Risk, Collateral and Funding: With Pricing Cases For All Asset Classes by Damiano Brigo, Massimo Morini and Andrea Pallavicini (Apr 10 2013).
• Kontrahentenrisiko: Bewertung, Steuerung, Unterlegung nach Basel III und IFRS, Sven Ludwig (Herausgeber), Marcus R. W. Martin (Herausgeber), Carsten S. Wehn (Herausgeber).

If possible the following:

• 105.101 Quantitative Methoden im Risikomanagement
• 105.639 Zinsstrukturmodelle und -derivate (or: 105.155 AKFVM Bewertung von Zinsderivaten)
• 105.642 Kreditrisikomodelle und -derivate