Managing Credit Risk in Investment Portfolios

LEVEL: INTERMEDIATE LEVEL

▪	Analyse credit products and use them efficiently
▪	Know the characteristics of different indices and be able to recommend a benchmark
▪	Analyse the risk exposure of a credit portfolio
▪	Conceive an active credit management strategy

▪	Credit market structure - Intermediate
▪	Aggregate and credit indices - Intermediate
▪	Risk indicators of a credit bond portfolio - Intermediate
▪	Credit risk management strategies - Intermediate

▪	Exhaustive approach to credit management: passive management, macro strategies, sector rotation, stock picking and arbitrage
▪	Analysis of bond management credit risk
▪	Real-life examples and case studies

▪	Bond and money managers
▪	Arbitrageurs
▪	Structurers
▪	Client relationship managers
▪	Institutional investors
▪	Fixed income salespeople
▪	Risk managers

Credit Market

▪

Credit Products

Straight and callable bonds, FRNs

Hybrid and exotic products

Single name and portfolio CDS/CLN

CDOs

▪

Market Structure and Recent Dynamics

Origin of the issuer/currency

Sector/Industry/Rating/Size

Derivatives and structured products

Indices and Index Products

▪

Categories

Lehman, Merrill, NASD-Bloomberg

IBoxx/ITraxx

▪

Rules

Universe, composition and turnover

Weighting, financial gearing bias, diversification

Pricing sources and analytics

▪

Products

Total return swaps

ETFs

▪

Choice of Index

Risk exposure/diversification

ALM considerations

Replication and tracking error

▪

Case Study
. Selection of an index and replication strategy

Risk Management

▪

Spread Analysis

Default risk and estimated recovery rate

Liquidity

Option component, OAS

▪

Spread curves

Benchmarks and methodology

Relation to interest rate curve

Use for forecasting

▪

Sensitivity

Duration spread

By maturity segment

VaR and stress tests

▪

Correlation

Credit and contagion risk

Credit/liquidity and joint risk: flight to quality

Credit/interest rates and default risk/effective duration

▪

Practical Workshop
. Create a risk monitoring table

Strategies: Management/Trading

▪

Macro Strategies

Liquidity constraints, risk premium and active management opportunity

Credit/interest rate risk allocation, diversification

▪

Relative Value Strategies

By sector

Long/short credit

▪

Arbitrage Strategies

Capital structure

Spread curve arbitrage

Basis arbitrage

▪

Correlation Trading

▪

Practical Workshop
. Study various strategies: sourcing, implementation, risk/return analysis, etc.