ADVANCED CREDIT RISK

MEASUREMENT AND
MODELLING TECHNIQUES
for effective portfolio credit risk management

NEW YORK, 5 & 6 SEPTEMBER 2002

LONDON, 19 & 20 SEPTEMBER 2002

COURSE HIGHLIGHTS: COURSE LEADERS:

• Compare and contrast the leading portfolio credit
risk modelling techniques
• Default modelling with copula functions
• Predicting and determining loss given default
• Analyse new trends in portfolio capital
management
• Structure and evaluate synthetic CDOs
Colin Burke, ABBEY NATIONAL TREASURY SERVICES
Alla Gil, CITIGROUP
Paul Hawkins, MERRILL LYNCH INTERNATIONAL
Frank Iacono, LEHMAN BROTHERS INC.
Ludger Overbeck, DEUTSCHE BANK AG
Dr. Dmitry Pugachevsky, BEAR STEARNS & CO.
Dr. Philipp J. Schönbucher, UNIVERSITY OF BONN
Bob Selvaggio, AMBAC FINANCIAL GROUP, INC.

PRACTICAL WORKED EXAMPLES AND CASE STUDIES:

• Construct the loss distribution function and calculate the expected loss for a real portfolio of corporate names
• Parameterise and calibrate a sample portfolio using comparative credit risk models
• Construct a calibrated spread curve
• Derive default probabilities from equity prices
• Use historical simulation to evaluate the performance of a traditional synthetic CDO

www.risktraining.com/crm
 ADVANCED CR
PORTFOLIO CR
NEW YORK, 5 & 6 September 2002
NEW YORK, Thursday 5 September 2002
8.45 3.15 Afternoon break
MODELLING DEFAULT RISK USING ASSET-BASED APPROACHES
· Structural models: Merton model 3.45
- examining key assumptions and limitations MODELS FOR PORTFOLIO CREDIT RISK MANAGEMENT:
- term structure of credit spreads UNDERSTANDING THE ANALYTICS, CALIBRATION AND
- empirical evidence PERFORMANCE OF THE LEADING ALTERNATIVE
- recovery rates and absolute priority APPROACHES
· Commercial implementation of the model: The KMV approach · A critical examination of leading portfolio credit risk modelling
techniques
CASE STUDY: Deriving default probabilities from equity - CreditMetrics
prices: How it works and why it “missed” with Enron - CreditRisk+
- KMV/Moody's
Philipp J. Schönbucher, Assistant Professor, Department of Statistics - Generalised framework, common ground and key differences
UNIVERSITY OF BONN · Selecting the most appropriate model for your portfolio
· How does each model use market information?
10.15 Morning break · An analysis of the new models for portfolio credit risk management

10.45 PRACTICAL WORKED EXAMPLE: Parameterisation and

ANALYSING SPREAD-BASED MODELS OF DEFAULT RISK calibration of a sample portfolio using comparative credit risk
· Credit spread curves and implied default probabilities models
- extracting information from market prices
· Practical application of a transition matrix model for modelling Bob Selvaggio, Managing Director, Risk Analysis and Reporting
portfolio credit risk AMBAC FINANCIAL GROUP, INC.
· Recovery modelling
- the impact of recovery rate on implied probabilities 5.30 End of day one
· Models of the default time
- Poisson and Cox processes
· Default modelling with copula functions
· Correlated defaults in spread-based models

PRACTICAL WORKED EXAMPLE: Constructing a calibrated

spread curve NEW YORK, Friday 6 September 2002
Philipp J. Schönbucher, Assistant Professor, Department of Statistics
UNIVERSITY OF BONN 8.45
CAPITAL MANAGEMENT FOR CREDIT RISKY PORTFOLIOS
12.15 Lunch break · New trends in portfolio capital management
· Integration of market and credit risk
1.15 · Generalising value-at-risk approach
ESTIMATING AND MODELLING RECOVERY RATES · Measuring capital required to cover the portfolio risks
· Regularities in historical recovery rates · Minimising portfolio capital needs
· Predicting loss given default: LossCalcTM · Different ways to implement transition from current to optimal
· Loss given default and recovery correlation risk portfolio
- how to determine loss given default
- internal assumptions on LGD PRACTICAL WORKED EXAMPLE: Construct the loss
- overcoming the problems of a lack of data distribution function and calculate the expected loss of a
- robustness results portfolio. Identify market and credit risk numbers for the
Philipp J. Schönbucher, Assistant Professor, Department of Statistics portfolio and discover the changes necessary to minimise the
UNIVERSITY OF BONN required capital. Analyse the various transactions used to
implement the required changes
2.00
FACTOR MODELS OF PORTFOLIO CREDIT RISK Alla Gil, Managing Director, Head of Strategic Risk Advisory and
· Conditionally independent defaults: The Binomial distribution Modelling Group
· The one-factor Vasicek model and its resulting returns distributions CITIGROUP
· Multi factor models
· Calibration and estimation 10.15 Morning break
· Econometric estimation
10.35
PRACTICAL WORKED EXAMPLE: Calibrating a factor model EFFECTIVE PRICING OF CREDIT DERIVATIVES FOR
to historical default frequencies PORTFOLIO CREDIT RISK MANAGEMENT
· Constructing spot/forward credit curves to price credit derivatives
Philipp J. Schönbucher, Assistant Professor, Department of Statistics · Examining alternative methods to price credit default swaps
UNIVERSITY OF BONN · Components of the credit spread and the impact of liquidity

www.risktraining.com/crm
 EDIT RISK MEASUREMENT AND MODELLING TE
REDIT RISK MANAGEMENT
· Evaluating the key components of theoretical credit swap pricing
· Overcoming the problems of a lack of data
- selecting the most accurate and appropriate data source for pricing
- assessing data quality and completeness
- overcoming the problems in estimating historical volatility
· Applying credit derivatives to manage portfolio credit risk
PRACTICAL WORKED EXAMPLE: Pricing a credit derivative
basket
Alla Gil, Managing Director, Head of Strategic Risk Advisory and
Modelling Group
CITIGROUP
12.05 Lunch break
1.05
MODELLING DEFAULT CORRELATION FOR PORTFOLIO
CREDIT RISK MEASUREMENT
· Event correlation
· Importance of correlation
- extreme cases - uncorrelated and perfectly correlated credits
· Comparison of different structural approaches
- Merton approach: Single- and multi-period
- normal copula
- t-Student copula
- Hull-White approach
· Sources of correlation data
PRACTICAL WORKED EXAMPLE: The effect of copula
specification on default probabilities and loss distributions
Dmitry Pugachevsky, Managing Director, Head of Credit Derivatives
Analytics
BEAR STEARNS & CO.
3.00 Afternoon break
3.30
USING HISTORICAL SIMULATION TO MEASURE THE
RELATIVE VALUE OF SYNTHETIC CDO TRANCHES
· Overview of synthetic CDO market and structures
· Interpreting the cohort default data
· Sampling the data to simulate default experience in a model reference
portfolio
· Applying the resulting loss distribution to a model of synthetic CDO
structures
· Evaluating measures of risk and reward for the underlyings and the
tranches
- expected loss
- variability of loss
- variation in these measures over time
· Recognising the weaknesses of this approach
PRACTICAL WORKED EXAMPLE: Using historical
simulation based on rating cohort data to evaluate the
performance of a traditional synthetic CDO, referencing a
diversified portfolio of high-grade corporate entities
Frank Iacono, Senior Vice President
LEHMAN BROTHERS INC.
5.00 End of course
www.risktraining.com/crm
LONDON, Thursday 19 September 2002
8.45
MODELLING DEFAULT RISK USING ASSET-BASED APPROACHES
· Structural models: Merton model
- examining key assumptions and limitations
- term structure of credit spreads
- empirical evidence
- recovery rates and absolute priority
· Commercial implementation of the model: The KMV approach
CASE STUDY: Deriving default probabilities from equity
prices: How it works and why it “missed” with Enron
Philipp J. Schönbucher, Assistant Professor, Department of Statistics
UNIVERSITY OF BONN
10.15 Morning break
10.45
ANALYSING SPREAD-BASED MODELS OF DEFAULT RISK
· Credit spread curves and implied default probabilities
- extracting information from market prices
· Practical application of a transition matrix model for modelling
portfolio credit risk
· Recovery modelling
- the impact of recovery rate on implied probabilities
· Models of the default time
- Poisson and Cox processes
· Default modelling with copula functions
· Correlated defaults in spread-based models
PRACTICAL WORKED EXAMPLE: Constructing a calibrated
spread curve
Philipp J. Schönbucher, Assistant Professor, Department of Statistics
UNIVERSITY OF BONN
12.15 Lunch break
1.15
ESTIMATING AND MODELLING RECOVERY RATES
· Regularities in historical recovery rates
· Predicting loss given default: LossCalcTM
· Loss given default and recovery correlation risk
- how to determine loss given default
- internal assumptions on LGD
- overcoming the problems of a lack of data
- robustness results
Philipp J. Schönbucher, Assistant Professor, Department of Statistics
UNIVERSITY OF BONN
2.00
FACTOR MODELS OF PORTFOLIO CREDIT RISK
· Conditionally independent defaults: The Binomial distribution
· The one-factor Vasicek model and its resulting returns distributions
· Multi factor models
· Calibration and estimation
· Econometric estimation
PRACTICAL WORKED EXAMPLE: Calibrating a factor model
to historical default frequencies
Philipp J. Schönbucher, Assistant Professor, Department of Statistics
UNIVERSITY OF BONN
ECHNIQUES FOR EFFECTIVE
LONDON, 19 & 20 September 2002
3.15 Afternoon break
3.45
MODELS FOR PORTFOLIO CREDIT RISK MANAGEMENT:
UNDERSTANDING THE ANALYTICS, CALIBRATION AND
PERFORMANCE OF THE LEADING ALTERNATIVE
APPROACHES
· A critical examination of leading portfolio credit risk modelling
techniques
- KMV/CreditMetrics
- CreditRisk+
- Generalised framework, common ground and key differences
· Sensitivity to portfolio composition: Selecting the most appropriate
model for your portfolio
· Implementation issues - overcoming the problem of a lack of data
PRACTICAL WORKED EXAMPLE: Parameterisation and
calibration of a sample portfolio using comparative credit risk
models
Colin Burke, Senior Quantitative Analyst
ABBEY NATIONAL TREASURY SERVICES
5.30 End of day one
LONDON, Friday 20 September 2002
8.45
CAPITAL MANAGEMENT FOR CREDIT RISKY PORTFOLIOS
· New trends in portfolio capital management
· Integration of market and credit risk
· Generalising value-at-risk approach
· Measuring capital required to cover the portfolio risks
· Minimising portfolio capital needs
· Different ways to implement transition from current to optimal
portfolio
PRACTICAL WORKED EXAMPLE: Construct the loss
distribution function and calculate the expected loss of a
portfolio. Identify market and credit risk numbers for the
portfolio and discover the changes necessary to minimise the
required capital. Analyse the various transactions used to
implement the required changes
Alla Gil, Managing Director, Head of Strategic Risk Advisory and
Modelling Group
CITIGROUP
10.15 Morning break
10.35
EFFECTIVE PRICING OF CREDIT DERIVATIVES FOR
PORTFOLIO CREDIT RISK MANAGEMENT
· Constructing spot/forward credit curves to price credit derivatives
· Examining alternative methods to price credit default swaps
· Components of the credit spread and the impact of liquidity
· Evaluating the key components of theoretical credit swap pricing
www.risktraining.com/crm
· Overcoming the problems of a lack of data
- selecting the most accurate and appropriate data source for pricing
- assessing data quality and completeness
- overcoming the problems in estimating historical volatility
· Applying credit derivatives to manage portfolio credit risk
PRACTICAL WORKED EXAMPLE: Pricing a credit derivative
basket
Alla Gil, Managing Director, Head of Strategic Risk Advisory and
Modelling Group
CITIGROUP
12.05 Lunch break
1.05
MODELLING DEFAULT CORRELATION FOR PORTFOLIO
CREDIT RISK MEASUREMENT
· Default correlations: Small but dangerous
· Use of copulas in modelling default correlation - conditional
copulas/default time copulas
· Copulas vs. correlation
· Sources of correlation data
· Generation of correlated random variates for portfolio modelling
· Ability-to-pay correlations vs. event correlations
· New results on correlation estimates based on asset time series and
default data
CASE STUDY: Stressed default probabilities in a portfolio of
correlated credits
Ludger Overbeck, Head of Risk Research and Development
DEUTSCHE BANK AG
3.00 Afternoon break
3.30
EXECUTING SYNTHETIC SECURITISATIONS AND CBO/CLOs
TO TRANSFER PORTFOLIO CREDIT RISK
· Cash vs. synthetic - how to choose the most appropriate approach for
your transaction
· What is a synthetic securitisation?
· How to structure a synthetic securitisation
- new structural developments for synthetic securitisations
- rating agency modelling of synthetics
· Putting synthetic securitisations to effective use
- understanding the advantages of synthetic securitisations
- who benefits from synthetics?
· Modelling and pricing synthetic securitisations
CASE STUDY: Leonardo - Aircraft portfolio risk transfer
Paul Hawkins, Vice President, Securitisation & Portfolio Credit
Derivatives
MERRILL LYNCH INTERNATIONAL
5.00 End of course

Colin Burke, ABBEY NATIONAL TREASURY SERVICES
(London course)
Colin Burke is a Senior Quantitative Analyst at Abbey
National Treasury Services specialising in credit portfolio and
economic capital modelling. As such he has designed and
developed Monte Carlo simulation and default correlation
models and applied these to portfolio analysis and CDO
structuring and analysis. He has also built and tested sovereign
default models.
Prior to joining ANTS, Colin has held a number of positions
at Barclays and ING Barings. He holds a BSc and Ph.D. in
Physics from King's College, London.
Alla Gil, CITIGROUP
(London and New York courses)
Alla Gil is a Managing Director and the Head of Strategic
Risk Advisory and Modelling Group at Citigroup. In this role
she is responsible for the development of the new risk
assessment and mitigation methodologies and advising the
senior management of major Citigroup's clients on currency
risk, interest rate risk, credit risk as well as asset/liability, and
economic capital management and optimisation.
Prior to Citigroup Alla spent 3 years at Goldman Sachs
developing interest rate derivatives models and 2.5 years at
CIBC developing credit derivatives models.
Paul Hawkins, MERRILL LYNCH INTERNATIONAL
(London course)
Paul Hawkins is a Vice President with responsibilities
structuring and marketing balance-sheet transactions within
Merrill Lynch's Securitisation and Portfolio Credit Derivatives
group. He was a Structurer for the groundbreaking Leonardo
and Stratus synthetic aircraft transactions and Igloo French
loan synthetic securitisation.
Prior to joining Merrill Lynch, Paul worked in a quantitative
capacity with the Credit Derivatives group at Citibank, N.A.
and Salomon Smith Barney where he modelled and structured
large portfolio synthetic securitisations. Paul holds a Ph.D. in
Quantitative Finance at Imperial College, University of
London, on optimising credit portfolios using economic
capital, and an MA in Mathematics from Cambridge
University.
Frank Iacono, LEHMAN BROTHERS INC.
(New York course)
Frank Iacono is a Senior Vice President of Lehman Brothers,
Inc. in the Structured Credit Trading Group in New York. Mr.
Iacono's responsibilities include structuring and trading of
portfolio credit derivatives, including “baskets” and synthetic
Collateralised Debt Obligation (“CDO”) products. Prior to
joining Lehman, Mr. Iacono was a Vice President in the
Structured Credit Products Group of Chase Securities, Inc.
(1998-2001) and a Consultant at Capital Market Risk
Advisors (1994 - 1998), Inc., a leading risk management and
financial engineering consulting firm. Mr. Iacono received a
Juris Doctor, cum laude from Harvard Law School, and a
Bachelor of Science, summa cum laude, from Yale University.
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COURSE LEADERS
Ludger Overbeck, DEUTSCHE BANK AG
(London course)
Ludger Overbeck is Head of Risk Research and Development,
CIB/Credit Risk Management at Deutsche Bank AG,
Frankfurt, since May 2000. His main projects include: Credit
portfolio models for RAROC purpose; analytic support for
portfolio management; analytic support for exposure
management; integration of market and credit risk; risk
assessment for CLOs and basket credit derivatives and analytic
support for operational risk. Prior to this he was responsible for
Group Market Risk Management, methodology and policy for
credit risk and portfolio models. Ludger also lectures at the
universities in Bonn (Department of Applied Mathematics)
and Frankfurt (Department of Business and Economics).
Dmitry Pugachevsky, BEAR STEARNS & CO.
(New York course)
Dmitry Pugachevsky is a Managing Director and the Head of
Credit Derivatives Analytics of Bear Stearns Co. Prior to
joining Bear Stearns in 2001, he worked for eight years with
analytics groups of Bankers Trust and Deutsche Bank,
developing models for credit, fixed income, and equity
derivatives. Dr. Pugachevsky received his Ph.D. in Applied
Mathematics from Carnegie Mellon University. He has
published several papers on modelling credit and fixed income
derivatives and co-authored a pioneering research on passport
options.
Philipp Schönbucher, UNIVERSITY OF BONN
(London & New York courses)
Dr. Philipp J. Schönbucher is Assistant Professor at the
Department of Statistics of the Faculty of Economics at the
University of Bonn. He holds degrees in Mathematics (Oxford)
and Economics (Bonn) and a Ph.D. in Economics. His
publications include papers on credit risk modelling, credit
derivatives pricing, stochastic volatility modelling, option
pricing in illiquid markets, real options and term structure
models. His main area of research is credit risk modelling and
credit derivatives pricing in which he has been active since
1996. Furthermore, he is author of a book on “Credit
Derivatives Pricing Models” (to appear 2002), and he is
consultant and professional trainer to a number of leading
financial institutions.
Bob Selvaggio, AMBAC FINANCIAL GROUP, INC.
(New York course)
Bob Selvaggio is a Managing Director of Ambac Financial
Group, Inc. He is responsible for portfolio credit and market
risk management and the attribution of economic capital.
Prior to joining Ambac in May 1998, Dr. Selvaggio served as a
Financial Economist at Thomson McKinnon Securities, and
then held a number of positions at the Chase Manhattan Bank
including Senior Asset/Liability Analyst, Head of Fixed Income
and Mortgage Research, and Managing Director of Treasury
Analytics.
A graduate of the University of Pennsylvania, Bob holds a
Ph.D. in Economics from Brown University. He is a member
of the American Economic Association and National
Association of Business Economists, and is a BAI Certified
Risk Professional.
 ADVANCED CREDIT RISK
MEASUREMENT AND
MODELLING TECHNIQUES
for effective portfolio credit risk management

Code : A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
NEW YORK, 5 & 6 SEPTEMBER 2002
LONDON, 19 & 20 SEPTEMBER 2002
T O R E G I S T E R
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Advanced Credit Risk Measurement... New York, 5 & 6 September 2002 $2,999
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