As every year, second year Master’s Degree students attend the seminar by the BBVA experts (Juan Palomar, Fernando de Lope, Luis García and Javier G Siles) about market risk and credit valuation adjustment and their value adjustments.
The programme of this seminar is:
Revisió de l'Equació Fonamental de Valoració de derivats. The course begins with an exploration of traditional derivative pricing methods, highlighting the importance of perfectly collateralised derivatives in price determination. Relationship between the EDP of the collateralised derivative and its valuation using Expected Value: Feynman-Kac Theorem
Credit Market Instruments. This course focuses on various credit market instruments, such as fixed-coupon corporate bonds, swaps, credit default swaps (*CDS), and the relationship between the spreads of these instruments.
Static Modelling of Single Reference Credit. It models the event of default and its relationship with the probability of survival, as well as the pricing of market instruments and CDS, including calibration with practical examples.
Single Reference Dynamic Models (Generalitat). Single-factor dynamic credit models are studied, examining background filtering, decomposition factors, survival probabilities and the valuation of flows in the event of non-compliance.
Replication of a Credit Derivative. Partial Differential Equation / Partial Derivative Equation (PDE). We analyse the replication of credit derivatives, using differential equations in partial derivatives, including the use of Poisson processes and the lemma of Itô with jumps.
Counterpart Risk (CVA). Focuses on counterparty risk, exploring methods to mitigate this risk, such as netting and collateralisation, and the valuation of Credit Valuation Adjustment (CVA) for both individual and portfolio derivatives.
EDP for Credit Risk Derivatives. Introduces the differential equations in partial derivatives applied to the valuation of credit risk derivatives, highlighting the importance of replication mechanisms.
CVA coverage. Examines strategies for CVA hedging in both complete and incomplete markets, highlighting the differences and challenges of each approach.
Introduction to FVA. Presents the *Funding *Valuation *Adjustment (FVA), addressing how the prices of uncollateralised derivatives are set under this framework.
CVA, DVA and FVA. The course concluded with a wide-ranging discussion on CVA, Debit Valuation Adjustment (DVA) and FVA, covering hedging strategies, hedgeable risks, and providing examples of how to manage these adjustments in practice.
