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Day 1: Modern Interest Rates with Collateral, Funding and Credit Risk |  |
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Presenter:
Marco Bianchetti: Head of Financial Modelling & Validation, Market Risk Management, Derivatives Pricing, Intesa Sanpaolo
The Interest Rate Market Across the Credit Crunch
- Libor/Euribor/Eonia interest rates
- Interest rate market segmentation after the credit crunch
- Xibor and counterparty/liquidity risk
- Counterparty risk and collateral
Classical Interest Rate Market Practices & Models
- Short rate, Bank account, Zero coupon bond
- Pricing measures
- Discount/capitalization factors and Deposit contract
- Forward Xibor rate and FRA/Futures contract
- Forward Swap Rate, Swap and Basis Swap contract
- Overnight Indexed Swap (OIS) contact
- Cap&Floor/Swaption contract
- Classical, single curve, pricing & hedging interest rate derivatives
Modern Interest Rate Market Practices & Models: 1st Step
- The multiple-curve market approach
- Basic assumptions and notation
- "Ingenuous" pricing approach: FRAs, Swaps, Caps/Floors, Swaptions
- No arbitrage and forward basis
- Foreign-currency analogy approach
Modern Interest Rate Market Practices & Models: 2nd Step
- Restating the problem, basic assumptions and notation revisited
- Modern pricing of vanillas: FRAs, swaps
- Modern pricing of vanilla options: caps/floors/swaptions, Black’s formula revisited
- Multi-curve bootstrapping:
- Introducing modern interest rate models:
- Beyond the Black’s model: smile generation
- SABR revisited
- Excel classwork: SABR construction and calibration
- Multiple curves, multiple deltas, multiple hedging
Switching to CSA Discounting in Practice
- Revealing CSA discounting in plain vanilla quotes
- Testing SABR calibration against CSA discounting
- Issues in CSA discounting:
- Market issues
- Funding issues: trades with or without CSA, CSA chaos, the new ISDA standard CSA
- The CVA/DVA/FVA puzzle
- Accounting issues and the forthcoming IFRS13
- IT issues
- Risk Management issues
- Management issues
- The role of quant
Conclusions & Selected References
Day schedule: 09:00 – 17:30
Break: 10:30 – 10:45
Lunch: 12:30 – 13:30
Break: 15:15 – 15:30
Day 1: Modern Interest Rates with Collateral, Funding and Credit Risk | Day 2: Modern Interest Rates with Collateral, Funding and Credit Risk | Details | download pdf
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Day 2: Modern Interest Rates with Collateral, Funding and Credit Risk | |
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Presenter:
Massimo Morini: Head of Credit Models, Banca IMI
Interest Rate Models for a CSA Multicurve Market
- Revising interest rate models and the main pricing formulas for a multicurve market
- Extending short-rate models for discounting different from Libor: Hull and White and CIR
- An HJM framework with credit risk in Libor for modelling the basis with short rates
- Different assumptions on correlation between curves
- A multicurve BGM Libor Market Model with and without stochastic volatility
- Extending the BGM Libor Market Model and SABR to Libor, OIS and Basis Spreads.
- Different formulations of the BGM multicurve model
- An example of practical implementation
- The pricing of volatility and correlation interest rate derivatives: CMS and Exotics.
Credit Risk in the Interest Rate Market
- Different interest rate markets. The risk-free market of textbooks.
- The real markets. The pre-crisis market with homogenous and stable credit and liquidity risk
- Understanding the post-crisis market: heterogeneous and volatile credit and liquidity risk
- Convexity adjustments and FX analogy in terms of credit volatility.
- A structural explanation of the new market patterns for collateralized interest rate derivatives
- A funding option hidden in Libor quotes. The different nature of Libor forwards
- Anticipating the Basis by looking at credit volatility
- OIS bootstrapping
- The real payoff of swaps and FRAs after the crisis
Funding Value Adjustment for Non-Collateralized Derivatives
- How the financing of collateralized derivatives justifies Eonia discounting
- The financing of non-collateralized derivatives. Computing the funding cost.
- Liquidity charge and its interactions with credit charge
- Different funding strategies and different shapes for funding charge
- The role of the Bond-CDS Basis and of the Libor-Eonia Basis on the cost of funding
- Competitiveness in Lending and Management of Liquidity risk. The role of Maturity transformation
Open Issues, Questions and Discussion
Day schedule: 09:00 – 17:30
Break: 10:30 – 10:45
Lunch: 12:30 – 13:30
Break: 15:15 – 15:30
Day 1: Modern Interest Rates with Collateral, Funding and Credit Risk | Day 2: Modern Interest Rates with Collateral, Funding and Credit Risk | Details | download pdf
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Details | |
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Location:
Adina Apartment Hotel Frankfurt Neue Oper
Wilhelm-Leuschner-Strasse 6
60329 Frankfurt am Main
Germany
Tel: +49 (0)69 24 74 74 0
Hotel Website
Sponsorship:
World Business Strategies offer sponsorship opportunities for all events, E-mail headers and the web site. Contact Sponsorship: +44 (0) 1273 201352
Disclaimer:
World Business Strategies command the rights to cancel or alter any part of this programme.
Cancellation:
By completing of this form the client hereby enters into a agreement stating that if a cancellation is made by fax or writing within two weeks of the event date no refund shall be given. However in certain circumstances a credit note maybe issued for future events.
Prior to the two week deadline, cancellations are subject to a fee of 25% of the overall course cost.
Day 1: Modern Interest Rates with Collateral, Funding and Credit Risk | Day 2: Modern Interest Rates with Collateral, Funding and Credit Risk | Details | download pdf