Introduction

The intricate world of derivatives has become a cornerstone of modern financial markets, enabling participants to manage risk and speculate on future price movements. However, this complexity introduces a unique and often underestimated challenge: settlement risk. This is the risk that one party to a derivative transaction fails to deliver on their obligation after the other party has already fulfilled theirs, leaving the second party with a loss. Understanding, identifying, and mitigating this risk, particularly within the credit derivatives space, is a critical skill for financial professionals aiming to maintain market integrity and protect their portfolios. This course is designed to provide you with the strategic insights and practical tools to effectively navigate this new frontier of financial risk management.

This comprehensive program provides a deep dive into the theoretical and practical aspects of derivatives settlement risk in credit. You will explore the interconnected nature of these fields, learning to assess the unique risks inherent in different derivatives portfolios and the nuances of various settlement methodologies. The course emphasizes the quantitative and qualitative tools required to analyze a portfolio's financial health, from advanced econometric models to machine learning-based forecasting. By the end of this training, you will be proficient in using advanced analytics to make smarter decisions, manage credit risk, and unlock significant value in your financial institution's risk management activities.

Duration: 10 Days

Target Audience

• Financial risk analysts
• Credit risk managers
• Derivatives traders
• Data scientists
• Regulatory compliance officers
• Internal and external auditors
• CFOs and other senior finance executives
• Investment fund managers
• Financial technology (fintech) professionals
• Legal and compliance officers

Objectives

• Understand the core concepts of derivatives settlement risk.
• Master the principles of credit derivatives.
• Analyze the key risk variables in a derivatives portfolio.
• Learn to build and validate advanced settlement risk models.
• Use quantitative tools for portfolio optimization.
• Understand the regulatory framework governing these practices.
• Develop a framework for derivatives settlement risk analysis.
• Assess the impact of macroeconomic shocks on a derivatives portfolio.
• Understand the ethical implications of financial transactions.
• Use machine learning for predictive modeling.

Course Modules

Module 1: Foundations of Derivatives Settlement Risk

• The importance of derivatives in financial reporting
• The unique challenges of derivatives settlement risk
• The difference between settlement and other risks
• The role of technology in settlement
• The impact of a changing economic environment

Module 2: Credit Derivatives and Their Risks

• The principles of a credit default swap
• The principles of a credit-linked note
• The differences and similarities between different credit derivatives
• The challenges of implementing these standards
• The impact on financial institutions

Module 3: Data and Analytics for Settlement Risk

• The importance of a clean and reliable dataset
• The use of internal and external data
• The role of alternative data
• The challenges of working with limited historical data
• The use of data visualization tools

Module 4: Econometric Models for Settlement Risk

• The principles of an econometric model
• The use of time series analysis and regression
• The importance of a reliable dataset
• The validation and back-testing of models
• The challenges of working with limited historical data

Module 5: Machine Learning for Settlement Risk

• The principles of a machine learning model
• The use of statistical methods and machine learning
• The importance of a reliable dataset
• The validation and back-testing of models
• The challenges of working with limited historical data

Module 6: Scenario Analysis and Stress Testing

• The concept of scenario analysis
• The role of stress testing in risk management
• The benefits for both traders and regulators
• The importance of a robust technology platform
• The challenges of implementing these solutions

Module 7: The Regulatory and Legal Landscape

• An introduction to key financial regulations
• The role of regulators in overseeing derivatives
• The legal challenges of cross-border transactions
• The importance of a robust compliance program
• The ethical implications of financial transactions

Module 8: Hedging and Mitigation Strategies

• The types of hedging instruments for settlement risk
• The use of credit insurance
• The importance of a robust hedging strategy
• The challenges of implementing a dynamic hedging program
• The role of derivatives in managing risk

Module 9: Portfolio Risk Management

• The concept of portfolio risk management
• The role of diversification in reducing risk
• The types of portfolio optimization techniques
• The importance of a data-driven approach
• The challenges of a rapidly changing market

Module 10: Capstone Project Part 1: Design

• Defining a specific portfolio of derivatives for modeling
• Mapping the data requirements and model architecture
• Outlining the key technical and analytical requirements
• Creating a detailed project plan
• Presenting the design to a mock review board

Module 11: Capstone Project Part 2: Development

• Implementing a settlement risk model for a chosen asset
• Using the model to evaluate a sample of transactions
• Analyzing the model's performance on key metrics
• Building a presentation to explain the analysis
• Documenting all assumptions and data sources

Module 12: Capstone Project Part 3: Presentation

• Presenting the full analysis of the chosen derivatives portfolio
• Discussing the risks and benefits of the model
• Proposing a plan for model improvement
• Q&A and peer feedback session
• Receiving expert recommendations and insights

Module 13: Emerging Trends

• The use of blockchain in settlement
• The role of AI in risk assessment
• The evolution of derivatives instruments
• The impact of new data sources on risk assessment
• The future of derivatives settlement

Module 14: Case Studies

• A case study of a major bank's derivatives division
• A case study of a hedge fund's risk management
• A case study of a financial institution's regulatory challenges
• The lessons learned from past credit cycles
• The importance of a robust framework

Module 15: Course Certification

• A final comprehensive assessment
• A final review of key concepts and objectives
• Issuance of a certificate of completion
• Post-course career guidance and networking
• A final Q&A with instructors

Training Approach

This course will be delivered by our skilled trainers who have vast knowledge and experience as expert professionals in the fields. The course is taught in English and through a mix of theory, practical activities, group discussion and case studies. Course manuals and additional training materials will be provided to the participants upon completion of the training.

Tailor-Made Course

This course can also be tailor-made to meet organization requirement. For further inquiries, please contact us on: Email: info@skillsforafrica.org, training@skillsforafrica.org  Tel: +254 702 249 449

Training Venue

The training will be held at our Skills for Africa Training Institute Training Centre. We also offer training for a group at requested location all over the world. The course fee covers the course tuition, training materials, two break refreshments, and buffet lunch.

Visa application, travel expenses, airport transfers, dinners, accommodation, insurance, and other personal expenses are catered by the participant

Certification

Participants will be issued with Skills for Africa Training Institute certificate upon completion of this course.

Airport Pickup and Accommodation

Airport pickup and accommodation is arranged upon request. For booking contact our Training Coordinator through Email: info@skillsforafrica.org, training@skillsforafrica.org  Tel: +254 702 249 449

Terms of Payment: Unless otherwise agreed between the two parties’ payment of the course fee should be done 10 working days before commencement of the training.