Thursday 05 November 2009

Post-congress seminar 1

Credit risk and model risk: lessons from the crisis

Led by Massimo Morini, Head of Credit Models and Coordinator of Financial Modelling Research, Financial Engineering, BANCA IMI

9.00 Registration and coffee

9.30

• Modelling credit spread volatility and spread jumps
• How sudden will default be?
• The hidden implications of modelling choices on Gap Risk
• Default correlation modelling: how the static copula gives wrong results in computing liquidity risk, dynamic Var, CDS counterparty risk

11.00 Morning break

11.30

• How flat default correlation misses the link between
correlation skew and systemic risk.
• Making correlation a function of seniority
• How standard correlation mapping misses the difference
between idiosyncratic and portfolio events in the dynamics of the skew
• Better results with dispersion-based mapping

12.30 Lunch

13.30

• Term Structure modelling in a credit crunch: how the meaning of Libor changes with the counterparty and liquidity risk
• The multiple curve: explaining Basis Swaps and anomolies in Forward Rate Agreements
• Structural modelling to analyze the behaviour of a company when default is approaching.
• The Lehman case and the Parmalat case
• The role of correlation and contagion effects

15.00 Afternoon break

15.30

• Studying the relation between equity and credit in a credit crunch.
• Capital structure arbitrage? Computing the counterparty risk in equity derivatives
• Probability if a financial Armageddon implied in CDX and i-Traxx markets.
• How it evolved in the crisis between August 2007 and the present
• The implications on Credit BGM-like market models
• The implications on the pricing of credit options