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Valuation and Collateral Workshop

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Valuation & Collateral Workshop, (One Day)

This workshop is about the valuation of trades and the mitigation of credit risk using collateral management.

The course will cover: 

  • How products are valued
  • Why valuations differ
  • Why collateral is used
  • The terminology and workflow of collateral
  • Effective procedures for collateral management

The workshop is designed for finance, middle office and administration staff and provides an introduction to the topic. More details are below.

Morning

Introduction

  • Why accurate valuation is important
  • P&L
  • Market risk
  • Credit exposures
  • Collateral
  • Importance of segregation of duties

Review of financial mathematics

  • Discount factors
  • Valuation processes

1. Swaps

  • Cash flows
  • Present value

2. Futures/forwards

  • Variation margin

3. Options

  • Using models

Problems with valuation

  • Validation of data
  • Market liquidity
  • Credit differentials
  • Independence

Introduction to collateral

  • Why collateral
  • Credit exposures, potential future exposure
  • Default probability & expected loss

Afternoon

  • How collateral works
  • Portfolio valuation
  • The collateral call
  • The collateral workflow

Collateral terminology

  • Collateral requirement
  • Independent amounts, (initial margin)
  • Haircuts, (valuation percentage)
  • Threshold amounts
  • Minimum transfer amounts
  • Interest on collateral

Internal procedures

  • Establishing a policy
  • Deciding on appropriated collateral
  • Types of transactions covered
  • Revaluation methodology
  • Credit support documents
  • What you negotiate

Problems & risks with collateral

  • Operational risk
  • Valuation of trades
  • Valuation of collateral
  • Dispute resolution
  • Why disputes arise
  • How to avoid disputes
  • How to resolve disputes

End of workshop and review

Related Documents

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