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Credit correlations and CVA

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Credit correlations and CVA

The importance of credit derivatives markets have been considerably decreased since the last financial crisis. Still, they the modeling of credit instruments remains crucial by its presence throughout the economic and financial chain.

This training presents an overview of credit models. Starting from structural models of default, we gradually move to the models used in practice for credit derivatives such as CDS, CDS Swaptions, and CVA calculation for vanilla products. We next focus on the problem of CDO valuation, which requires appropriate modeling of the correlation between defaults of different names within given pool of credits. Of course, beyond its good representation of the phenomenon under consideration, the permanent concern of a model is its calibration and computation in real time. These points will be discussed in detail.

Our pedagogical approach insists on understanding the technical issues, without going into the purely mathematical details. Similarly, numerical algorithms will be justified in detail without concern for the theoretical justification of the convergence.

The morning will be devoted to a quick review of structural models, then the introduction of credit market modeling tools. The afternoon will be devoted to the models for calculating the credit adjustment value, as well as the numerical calculation and calibration aspects of all the models encountered.

  • Dates :September, 23th, 2020
  • Duration :1 Day
  • Location :Ecole Polytechnique Executive Education, Palaiseau
  • Tarif :2 500 € HT
  • Language :English or French
  • Code :CCVA

Objectives

  1. Present the classic models of the credit markets: - Value of a company subject credit risk - Credit correlation products - Credit Adjustment Value (CVA)
  2. Learn the basics of methods often used in black box
  3. Illustrate the implementation of these approaches (calibration and numerical implementation)

Program

MORNING / 9 – 12 :30 am

Nizar TOUZI

General Introduction

  • Round table presentation and objectives reviews

Structural models

  • Merton model
  • Black & Cox model
  • Leland & Toft model

Intensity models and credit derivatives

  • Reminders: exponential law, Poisson process, intensity, time dependent intensity, Cox process
  • Credit spread and CDS market
  • Derivatives with underlying subject to default, CVA

 

AFTERNOON / 2 – 5:30 pm

Caroline HILLAIRET

Contribution of evolutionary algorithms

  • Credit correlation models
  • Copula
  • CDO evaluation with Gaussian copula

Biologically inspired optimization algorithms

  • Calibration
  • Digital implementation: nested Monte Carlo, Branching Monte Carlo.
  1. Titre: 
    Pre requisite
    Texte: 
    • Basic notions in probabilities
    • Basic knowledge of stochastic calculus (the essential tools will be reviewed)
    • Basic notions in optimization
  2. Titre: 
    Competences acquired at the end of the training
    Texte: 
    • Knowledge of credit derivative models.
    • Practical use of these models
  3. Titre: 
    Pedagogical approach
    Texte: 

    Conceptual and methodological topics illustrated by examples

  4. Titre: 
    Targeted Persons
    Texte: 
    • Graduates in science with various backgrounds and training in applied mathematics (including Probability and Statistics)
    • Market practitioners : IT quants, front office, middle office, risks, software editor, asset manager
    • Engineers in repositioning on the equity markets, rates, foreign exchange, hybrids, energy markets, commodities, precious metals, and cryptocurrencies

Speakers

  1. Academic director
    Nizar
    Centre de Mathématiques Appliquées (CMAP), Ecole polytechnique

    Nizar Touzi a obtenu en 2007 le Prix du Jeune Chercheur en Finance d'Europlace, en 2012, il a été lauréat du Prix Louis Bachelier de la Fondation Natixis pour la recherche quantitative et de la SMAI et auréat d'une ERC Advanced Grant 2012, sur le thème "Mathematical Methods for Robust Financial Risks Management".

    Biographie

  1. Speaker(s)
    Nizar
    Centre de Mathématiques Appliquées (CMAP), Ecole polytechnique

    Nizar Touzi a obtenu en 2007 le Prix du Jeune Chercheur en Finance d'Europlace, en 2012, il a été lauréat du Prix Louis Bachelier de la Fondation Natixis pour la recherche quantitative et de la SMAI et auréat d'une ERC Advanced Grant 2012, sur le thème "Mathematical Methods for Robust Financial Risks Management".

    Biographie

  2. Speaker(s)
    Caroline
    Centre de Mathématiques Appliquées (CMAP), Ecole polytechnique

    Maître de conférences 
    Voir la biographie complète
     

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