Advancing the Field of Quantitative Finance
formerly the IAFE

Event: Valuation and Risk of Structured Credit Portfolios Beyond the Crisis
Date: January 22, 2009
Time: 5:00 Registration
5:30-7:00 Event
300 Madison Avenue (at 42nd Street)
New York

International Association of Financial Engineers presents

An IAFE Members Only Event
Tutorial Series


Valuation and Risk of Structured Credit Portfolios Beyond the Crisis

Thursday, January 22, 2009
5:00 Registration and Coffee Reception
5:30-7:00 Event

300 Madison Avenue (at 42nd Street)
New York

Tutorial led by

Dan Rosen

R2 Financial Technologies and Fields Institute


David Saunders

University of Waterloo

Event Description:

The current financial crisis has underscored the need for transparent and robust valuation methods for structured credit portfolios. Practitioners require reliable models to mark-to-market their portfolios, hedge the risk of unwanted exposures and understand credit concentrations. In practice, however, the industry has still largely relied on first-generation of models, with well documented practical and theoretical limitations. For example, the Gaussian Copula framework for synthetic CDOs is static and not arbitrage-free, its treatment of bespoke portfolios is ad-hoc, and has been shown to provide unreliable hedge ratios, especially in times of distress. Furthermore, given their complexity, the valuation of ABSs and cash CDOs still commonly relies on simple bond-models and matrix pricing.

 This seminar introduces a new, practical scenario framework for valuing, stress-testing and managing the risk of structured credit portfolios including bespoke CDOs, CLOs and ABS. In order to bring full transparency, the framework is based on the application of detailed bottom-up credit models and cash-flow modelling using Monte Carlo techniques.  Aimed for credit traders, portfolio managers and risk managers, the seminar presents the basic concepts and illustrates the methodology through a series of market examples.  Topics include:

  • Review of valuation techniques for synthetic and cash instruments
  • Introduction of the Systematic Weighted Monte-Carlo (SWMC) method and implied factor models
  • Application of factor models to characterize credit correlations
  • Sensitivities and hedging
  • Risk management: stress testing, concentration risk, model risk
  • Examples:
    • MBS bondSynthetic bespoke CDOCLO (including prepayment/cancellation)ABX and cash CDO examples
    • Performance of the model in 2008


This is an IAFE Members Only event. Only members at the academic or practicioner level can register for this event.

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