Introduction to Credit Spreads and of the Management of Risk

Course Features

Duration: 8 hours
Skill Level: All level
Language: English

DESCRIPTION

Theoretically, the changes in yield spreads between risky and risk-free bonds should reflect changing expectations in the likelihood of loss from default, which is determined by variability in the probability of default and expected recovery. Credit spreads reflect the specific nature of an obligation. For instance, secured debt generally has higher credit quality than subordinated debt of the same issuer. Credit spreads also reflect the financial condition of the issuer, the issuer’s industry and the issuer’s home country. This course provides a comprehensive introduction to credit spreads and optimizing the manner in which risk is taken.

TARGET AUDIENCE

Participants from various areas of the institution whose work entails support of professionals involved in credit analysis or credit risk management.

OBJECTIVES

Describe the economic process that occurs when a borrower defaults
Define the term structure of credit spreads and why it exists
Identify the factors influencing credit spreads
Define the market approaches to calculating credit spreads
Calculate the credit spread for a credit risky bond, given a set of assumptions
Outline a bank’s approach to credit risk management
Identify areas of the bank involved in credit risk management and their responsibilities
Define the ways in which a bank limits the risks in traded assets
Define the variables used to establish the various risk limits

PREREQUISITES REQUIRED

Participants should be comfortable working with numbers and performing simple calculations.

COURSE DETAIL Morning Introduction to the Program

Workshop introduction
Instructors’ experience
Curriculum outline, background and purpose
Review of mutual objectives

Introduction to Risk Management

Role and function of financial risk management
Major causes and sources of financial risk
Users of risk management tools (institutions, corporates)
Evolution of risk management

Sources, Types and Issues Involving Risk

Market
Credit
Operational
Liquidity

Credit Spreads, Defaults and Recoveries

Credit Spreads Defined
Default Probabilities & Recovery Rates
Historic Default Rates (Moody’s)
Default Risks
Credit Spreads - Factors to Consider

Afternoon Assessing the Spread on Credit Risky Bonds

Influences on the Credit Spreads
Calculating Credit Spreads

Credit Management of Traded Assets

Objectives of Credit Risk Management
Categorization of Credit Risk
Operational Issues in Credit Risk Management

Settlement Contract and Revaluation Limits

Settlement Risk
Revaluation Risk

Regulatory concerns and actions

Major events, causes and outcomes
Key regulatory bodies and issues raised
Reducing financial disasters
Safety of the financial system

Review and Conclusion of Workshop

Review of subjects and themes discussed
Review of objectives
Final questions and answers
Complete feedback forms

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Introduction to Credit Spreads and of the Management of Risk

Course Features

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