XVA and Counterparty Credit Risk

Since the market events of 2008, counterparty credit and funding risk, together with capital, have become an important issue for the valuation and risk management of financial derivatives. The most contemporary version of those topics is often referred to as XVA. Every institution in the world that deals with derivatives is impacted by these risks. They need to understand what XVA is, how it can be managed, how it can be calculated and what it means for the organization. Institutions interested in this topic range from tier-1 banks to small hedge funds, including national and local banks, asset managers, pension funds, corporates and regulators.

One of the difficulties with XVA is that it deals with risks that can be hidden in a book of trades, so we need experts in this field to unearth the details of those risks that are embedded in financial derivatives. Also, their calculation can be quite convoluted, as typically we need to run complex Monte Carlo simulation in order to measure it. Consequently, XVA management is anything but straight forward and it involves several departments in an organisation, including Trading, Sales, Risk Management, Collateral Management, Hedging, IT and Legal. This course is provided by a seasoned practitioner and deals with all the main issues around XVA.

December 14 to December 15, 2017
Duration: Two days (9.00am to 5.00pm)
Location: The Tower Hotel – London E1, UK
Trainer: Ignacio Ruiz
Course fee: £1790 + VAT – Register online


Introduction to Counterparty Risk, Discounting, CVA, FVA and KVA

+ Why are counterparty risk and CVA important?
+ Funding, discounting and CVA
+ The three legs of counterparty risk: CVA, risk management and capital
+ Strict definitions
+ Good (and bad) approximations

Calculating CVA, FVA and other XVAs

+ Monte Carlo simulations: Advantages & disadvantages
+ The four steps in a MC simulation
+ Analytical calculations
+ Standard models: Interest rates; FX; equity; credit; commodities

Hedging and Managing CVA and DVA

+ CVA as the price of a CCDS
+ Types of hedging: From the risk management perspective; From a pricing perspective
+ Dynamic hedging
+ Managing Funding
+ Wrong Way Risk

Practical Examples

In this session the trainer computes XVA live on his laptop in his XVA Monte Carlo engine. He starts with a few standard examples and the he lets the delegates calculate whatever they want. + Single trade examples: Swaps; Forwards; Options; Exotics
+ Portfolio examples
+ Colateral V. uncollateralized calculations
+ Netting, aggregating and adding risk profiles


Hedging and Managing Funding, Discounting & Liquidity risk, FVA, CollVA & LVA

+ A history of CVA and FVA in financial institutions
+ Why we need an FVA adjustment
+ The true meaning of that adjustment
+ FVA and discounting
+ FVA calculation
+ Collateral in funding
+ Current challenges

KVA: Managing Risk, Calculating Capital

+ CVA risk management
+ Default risk: Exposure management; How we set up limits; Examples
+ Capital and Reserves: Regulatory & Economic capital; Basel II and Basel III; CVA-VaR and CCR charges

Central Clearing and Initial Margin

+ Risk transformation through CCPs
+ CCP structures and implications
+ Calculation of exposures
+ Calculation of Initial Margins
+ Modelling and Implications

Implementing a CVA, FVA & LVA System in your Organisation

+ What is and isn't required from a counterparty risk & CVA system?
+ Data management: Portfolio; Market Data; Static Data; Collateral, margining, netting
+ Internal V. 3rd party vendor systems: Which one is best for me?
+ Parallel computing: Optimising the speed of my calculations
+ System scalability
+ Managing Monte Carlo noise
+ Final discussion and questions

The future: XVA desks - the ultimate challenge in financial institutions

+ The overlap of all XVAs: CVA, DVA, FVA, LVA, KVA, etc
+ Internal management of all XVAs
+ Creating the right incentives in a trading operation
+ Managing their risk correctly
+ XVA in balance sheet and accounting