Interest Rate Models and Derivatives: New Paradigm, Counterparty Risk

This course takes place from February to March, 3 hours per week.

The purpose of this course is to address counterparty risk and liquidity risk which have played a fundamental role in financial markets since the 2008 crisis:

• Introduction and history of the credit derivatives market (CDS, CDOs etc.)

• Theoretical dynamic modelling of credit risk and different intensity models

• Introduction to counterparty risk and the calculation of collateralised exposures

• Multi-curve discount modelling (per currency, with or without collateral) and applications to options (swaptions etc.)

• Dynamic portfolio with collateral: solving some associated non-linear equations

• Future financing costs and their impact on valuation (FVA)

• Academic and practical introduction to CVA/ DVA: definitions, valuation, management of an XVA desk, Wrong Way Risk (unfavourable correlation between exposures and counterparty default time)

• Introduction to the Basel regulation for counterparty risk

• Introduction to Initial Margins for Non-Cleared Derivatives

• Introduction to clearing houses (CCPs)