Calculate potential future exposure and expected exposure profiles for representative OTC derivative portfolios.
Finance & Banking
Counterparty Credit Risk and XVA Pricing for OTC Derivatives
Build the skills to simulate counterparty exposure, price the full XVA stack and apply SA-CCR and Basel III capital rules across OTC derivative portfolios.
🗓️Duration5 training days
📚Content4 modules · 8 sessions
🎓On completionAccredited attendance certificate
About the programme
Course Overview
Every OTC derivative trade carries a hidden price: the risk that a counterparty defaults before the contract matures, and the cost of funding and capitalising that risk over the trade's life. This course teaches participants to quantify counterparty credit risk and to price the full XVA suite that dealers and banks now build into every quote. Sessions work through exposure simulation, building potential future exposure and expected exposure profiles from netting sets governed by ISDA Master Agreements, before decomposing the XVA stack into CVA, DVA, FVA, MVA and KVA. Participants apply SA-CCR to compute exposure at default, work through Basel III BA-CVA and SA-CVA capital charges, and design CSA terms, collateral schedules and SIMM-based initial margin arrangements that mitigate exposure. Teaching combines worked exposure calculations, term-sheet analysis and collateral negotiation exercises so participants leave able to build an XVA-aware pricing and risk framework for an OTC derivatives book.
Expected Learning Outcomes
Decompose the XVA stack into CVA, DVA, FVA, MVA and KVA components and explain their economic drivers.
Apply SA-CCR to compute exposure at default for regulatory capital purposes.
Structure ISDA Master Agreement and CSA terms to mitigate counterparty exposure through netting and collateral.
Identify wrong-way risk in trade structures and adjust exposure models accordingly.
Assess Basel III BA-CVA and SA-CVA capital charge methodologies for a derivatives book.
Build a collateral and margin call workflow consistent with SIMM-based initial margin requirements.
Who Should Attend
Derivatives traders and structurers pricing counterparty risk into OTC trades.
Counterparty credit risk analysts in bank risk management functions.
XVA desk quants and pricing analysts supporting trading desks.
Collateral and margin operations staff managing CSA relationships.
Regulatory capital and Basel reporting specialists in banking.
Treasury and ALM professionals overseeing derivatives funding costs.
Course Modules
Select any module to see its sessions and points.
01Exposure Measurement and Simulation for OTC Portfolios
2 sessions · 8 points
Session 1Modelling Potential Future Exposure and Expected Exposure
- Simulate future market scenarios using Monte Carlo paths to generate potential future exposure profiles for interest rate swaps and FX forwards.
- Distinguish expected exposure, expected positive exposure and effective EPE, and calculate each from simulated exposure paths.
- Build exposure profiles that account for amortising notionals, break clauses and optionality embedded in structured OTC trades.
- Translate exposure profiles into a credit valuation adjustment input by combining exposure with counterparty default probabilities.
Session 2Netting Sets, Master Agreements and Exposure Aggregation
- Define netting sets under an ISDA Master Agreement and demonstrate how close-out netting reduces gross exposure to a single net figure.
- Aggregate exposures across multiple trades and asset classes within a netting set to compute portfolio-level PFE.
- Evaluate the impact of a downgrade trigger or additional termination event on netting set composition and exposure.
- Reconcile netting set exposure calculations against collateral held under the associated credit support annex.
02The XVA Stack: CVA, DVA, FVA, MVA and KVA
2 sessions · 8 points
Session 1Credit and Debit Valuation Adjustment Mechanics
- Calculate CVA as the market price of expected loss from counterparty default, integrating exposure, probability of default and loss given default.
- Derive counterparty default probabilities from CDS spreads or proxy curves when liquid single-name spreads are unavailable.
- Compute debit valuation adjustment to reflect the bank's own default risk and reconcile its accounting treatment under IFRS 13.
- Attribute daily CVA profit-and-loss moves to credit spread changes, exposure changes and market moves for desk-level reporting.
Session 2Funding, Margin and Capital Valuation Adjustments
- Compute funding valuation adjustment to capture the cost of funding uncollateralised or partially collateralised derivative exposure.
- Calculate margin valuation adjustment as the cost of funding initial margin posted over the life of a trade.
- Estimate capital valuation adjustment to price the cost of regulatory capital held against a derivatives position.
- Reconcile overlapping XVA components to avoid double-counting funding costs already priced into FVA and MVA.
03Regulatory Capital for Counterparty Credit Risk
2 sessions · 8 points
Session 1SA-CCR Exposure at Default Calculation
- Calculate replacement cost and potential future exposure add-ons under the SA-CCR framework for a representative derivatives portfolio.
- Apply supervisory factors and correlation parameters by asset class to compute the aggregate add-on under SA-CCR.
- Incorporate the effect of eligible collateral and margin agreements on the SA-CCR exposure at default figure.
- Compare SA-CCR outcomes against the prior Current Exposure Method to explain capital impact for typical trading books.
Session 2Basel III CVA Capital Charges: BA-CVA and SA-CVA
- Compute the Basic Approach CVA capital charge using regulatory risk weights and supervisory correlation parameters.
- Assess eligibility criteria for the Standardised Approach CVA and its sensitivity-based capital calculation.
- Identify which hedges qualify for CVA capital relief under BA-CVA and SA-CVA eligibility rules.
- Model the capital impact of moving a derivatives book from BA-CVA to SA-CVA treatment.
04Collateral, Margin and Wrong-Way Risk Management
2 sessions · 8 points
Session 1CSA Design, Thresholds and Collateral Optimisation
- Negotiate credit support annex terms including thresholds, minimum transfer amounts and eligible collateral schedules.
- Optimise collateral posting choices across eligible currencies and securities to minimise funding cost.
- Model the impact of asymmetric CSA terms on exposure and valuation between two counterparties.
- Design a collateral dispute resolution process consistent with ISDA collateral management best practice.
Session 2Initial Margin, SIMM and Wrong-Way Risk Controls
- Calculate initial margin requirements for non-centrally cleared derivatives using the ISDA Standard Initial Margin Model.
- Identify specific and general wrong-way risk in trade structures where exposure and counterparty credit quality are correlated.
- Adjust exposure and CVA calculations to capture wrong-way risk through stress scenarios and add-on charges.
- Build a margin call workflow covering call issuance, dispute management and collateral substitution timelines.
What the participant receives
4 course modules
A structured syllabus
8 training sessions
across 5 days
32 detailed points
Applied, detailed content
Accredited attendance certificate
On completing the programme
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