Risk Management Training Programs

The Fundamentals of Counterparty Risk

Réf: FOCR-205

The Fundamentals of Counterparty Risk

PUBLIC TRAINING
IN-HOUSE TRAINING
TAILOR-MADE TRAINING

IN-PERSON OR REMOTE CLASS

Duration: 2 days (14 hours)

➕ Remote learning activity

2050,00 € VAT Exempt (*)

📌 Reference: FOCR-205


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(*) As a training organization, Finance Tutoring benefits from a VAT exemption under Article 261-4-4° of the French General Tax Code (CGI).

Course Description

Fundamentals of Counterparty Risk

Intensive 2-day training (14 hours) – Theoretical approach and real-world case studies

The Fundamentals of Counterparty Risk training provides a deep understanding of the mechanisms and challenges involved in managing counterparty risk in financial transactions, with a particular focus on derivatives, loans, and structured finance products.


◉ Current Context

In a constantly evolving regulatory environment (Basel III/IV, EMIR, SFTR), this course addresses the growing needs of financial institutions in:

  • Mastering capital requirements (CET1, RWA)
  • Managing liquidity ratios (LCR, NSFR)
  • Ensuring compliance with international standards

Learning Content

1. Core Concepts

  • Potential Future Exposure (PFE)
  • Credit Value Adjustment (CVA/DVA)
  • Margin mechanisms (VM/IM)

2. Regulatory Aspects

  • Basel III/IV requirements
  • EMIR/SFTR reporting
  • Pillar 3 and transparency

3. Case Studies

  • Simulations on OTC derivatives
  • Collateral calculations
  • RWA optimization

Learning Objectives

  • Master counterparty risk calculation methodologies (PFE, CVA)
  • Implement collateral management strategies
  • Analyze the impact of Basel regulations on operations
  • Optimize regulatory reporting processes
  • Anticipate ESG and technological developments
  • Solve real-world counterparty risk management cases

Target Audience

Risk Managers
Derivatives Traders
Collateral Managers
Quantitative Analysts
Risk Auditors

◉ Available both in-person and online ◉ Training materials provided ◉ Certificate of completion

Training Program

The Fundamentals of Counterparty Risk

I. Key Concepts and Basic Mechanisms

  • Definition of counterparty risk and distinction from traditional credit risk
  • Conceptual nuances: bilateral risk (derivatives) vs. unilateral risk (loans), settlement risk vs. counterparty risk
  • Impact of financial crises: the role of CDS in the 2008 crisis (AIG case study)

Practical Case:

Analyze a derivatives portfolio to identify counterparty risk.

II. Measurement and Calculation of Counterparty Risk

  • Calculation of Exposure at Default (EAD) and Expected Positive Exposure (EPE): estimating exposure at default
  • Introduction to Potential Future Exposure (PFE) and the impact of mark-to-market
  • Risk scenario simulations: Monte Carlo approach and stress tests

Practical Case:

Manual calculation of EAD on an interest rate swap.

III. Modeling and Complex Risks

  • Identification of Wrong-Way Risk (WWR): correlation between exposure and default probability
  • Advanced models: Credit Value Adjustment (CVA) and Debt Value Adjustment (DVA)
  • The role of collateral and guarantees: Credit Support Annex (CSA) and margin call dynamics

Practical Case:

Calculate CVA using Excel/Python.

IV. Mitigation and Legal Framework

  • Risk mitigation instruments: bilateral and multilateral netting, portfolio compression
  • Central Counterparties (CCPs): advantages and limitations in risk management
  • Collateral optimization strategies and funding costs

Practical Case:

Analysis of Lehman Brothers' bankruptcy and its impact on CCPs.

V. Regulatory Context and Compliance

  • Key regulations: Basel III/IV, capital requirements (SA-CCR, IMM), CVA charge
  • Comparison of regulatory frameworks: Dodd-Frank (US) vs. EMIR (EU)
  • Stress testing and reporting: regulatory scenarios (BCBS, EBA)

Practical Case:

Complete an SFCR/FRTB report on counterparty risk measurement.

VI. Innovations and Trends

  • Impact of ESG standards on counterparty evaluation and risk management
  • Blockchain and smart contracts for automated collateral management

Practical Case:

Analyze the impact of ESG criteria on counterparty risk assessment in a financial asset portfolio.

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📌 Dive Deeper into the Topic

Want to better understand risk management mechanisms and their application in financial risk management? Explore our detailed articles:

📖 Understanding Wrong-Way Risk in Simple Terms 📚 Understanding Funding Value Adjustment in Simple Terms