The 8th Fixed Income Conference

Steigenberger Hotel Herrenhof, Vienna 10th / 11th / 12th October 2012

Due to the great success of all our previous Fixed Income conferences, WBS Training are pleased to announce that we are heading to the wonderful city of Vienna on 10th, 11th and 12th October 2012.

The highly popular three streamed format will be retained as in previous years, along with three workshops being presented on Wednesday 10th October.

At our conference, delegates are not restricted to attend single streams. You have the opportunity to hop around the different streams and attend the presentations that benefit you the most. All stream presentation times run concurrently with each other.

Main Sponsor:

Gold Sponsors: Silver Sponsors: THE 8TH FIXED INCOME CONFERENCE PRESENTER LIST:

Jesper Andreasen (Global Head of Quantitative Research, Danske Bank)

Peter Austing (Quantitative Analyst, Barclays Capital)

Martin Baxter (Analyst, Fixed Income Quant Group, Nomura International)

Sönke Blunck (Senior Quantitative Analyst, Landesbank Berlin)

Alexandre Bon (Head of Credit Risk, Murex)

Andrey Chirikhin (Managing Director, Head of CVA and CCR(IMM) Quantitative Analytics, RBS)

Peter Dobranszky (Head of Risk Model Validation, BNP Paribas)

Christian Fries (Head of Model Development, Group Risk Control, DZ Bank)

Jon Gregory (Partner, Solum Financial Partners)

Paul Howell (Nomura International, VP, Interest Rate Derivatives Trading)

Peter Jaeckel (Deputy Head of Quantitative Research, VTB Capital)

Chris Kenyon (Director, Quantitative Research, CVA, Lloyds Banking Group)

Jörg Kienitz (Head of Quantitative Analysis, Treasury, Deutsche Postbank)

Christoph Konvicka (Head of Credit Portfolio Modelling Section, VP, Bank Austria)

Wolfgang Kluge (Head of Options Quants Europe, BNP Paribas)

Hicham Lahlou (CEO & Co-Founder, Xcelerit)

William McGhee (Head of Hybrid Quantitative Analytics, RBS)

Antoine Miribel (Head of CVA Trading, Global Finance and FX, Deutsche Bank)

Massimo Morini (Head of Credit Models, Banca IMI)

Giovanni Pepe (Manager in the Banking Supervisory Department, Head of Financial Risk Analysis Practice, Banca d’Italia)

Rade Plavsic Vladimir Piterbarg (Global Head Of Quantitative Analytics Group, Barclays)

Andrea Prampolini (Head of Counterparty Risk Management, Banca IMI)

Dmitry Pugachevsky (Director of Research, Quantifi)

Michael Pykhtin (Senior Economist, Federal Reserve Board)

Dan Rosen (CEO, R2 Financial Technologies)

Marc-Olivier Seguin (Head of Fixed Income Quantitative Research, CVA/LVA and FX Derivatives, BNP Paribas)

Emanuel Schörnig (Managing Director, Ithuba Capital)

Alexander Sokol (Numerix)

Igor Smirnov (Head of Fixed Income Quantitative Research Europe, Banco Santander)

Peter Whitehead (Director, Group Valuation Oversight, Deutsche Bank) Pre-Conference Workshop Day: Wednesday 10th October

Discounting, Funding, The Quantitative Foundations CVA and CCR: Approaches, Collateralization: From Solid of Counterparty Risk, CVA and Similarities, Contrasts and Foundation and Intuition to Funding Implementation Calibration of Models by Jon Gregory, Solum Financial by Andrey Chirikhin, RBS by Christian Fries, DZ Bank Partners Economic and Legal Background of Part 1: From Solid Foundations and Delegates will receive a complimentary Counterparty Risk Intuitions to Models copy of the Wiley Finance Series 2012 publication: Counterparty Credit • Economics of market and counterparty • Discounting Revisited: Mark-to-Market Risk and Credit Value Adjustment: risk versus Replication of Cash Flows A Continuing Challenge for Global • Legal framework: Basel III, CRD4, • Resolving the Own-Credit Paradox Financial Markets, 2nd Edition by Jon Dodd-Frank (making P&L when own credit rating Gregory. • Capital charges: VAR, CCR and CVA worsens) VA R • Assumptions: Being a net funder and CVA • Wrong way risk the P&L take out • Collateral modelling and centralized • Collateralization and Funding: Cash • Basic definitions and motivation counterparties Flows • Regulatory requirements • Valuation with Stochastic Funding • Exposure quantification CVA Theory (Funded Replication) • Default probability estimation and • Collateralization and Funding: mapping methods • CVA as hedgeable component of credit Modelling: • Hedging CVA risk • Collateralized vs uncollateralized • The Cross Currency Analogy Wrong-way Risk valuation • The Risky Payoff (Default) Analogy • Fair valuation adjustments (CVA, FVA, • Cross Currency and Defaultable LIBOR • Empirical evidence etc): a survey Market Model • Portfolio wrong-way risk • Formal derivation and economic • The LIBOR Market Model with • Trade level wrong-way risk meaning Stochastic Funding • Central counterparties • Model vs payoff in CVA pricing • Hedging and cross-gamma • CVA and CCR similarities and contrasts • Relation to DVA, CVA and the FVA: Valuation versus Valuation Adjustments Debt Value Adjustment (DVA) Modelling and Valuation • Valuation of Unilateral Collateralized Products (Plain Vanillas become • Formulas • Risk neutral (CVA) vs historical (CCR) Complex) • Hedging and monetising DVA approaches • Sensitivities and Hedging in a Partially • Impact of default correlation • Hybrid risk-neutral modelling, Collateralized Portfolio • DVA and closeout calibration and theoretical hedging • CCR modelling, estimation and capital Part 2: Building Forward and Funding and Valuation requirements calculation Discounting Curves, Calibration of • Wrong way CVA Models • The interaction between CVA, valuation • “At the point” pricing vs American and funding Monte Carlo for credit risk • Funded Replication (revisited) • OIS discounting • Calibration of Models: • Funding value adjustment (FVA) Implementation and Daily Operations • Optimisation of CVA, DVA and FVA - o Discount Curves, Forward Curves and where will it all lead? • CVA vs CCR implementation Convexity requirements and challenges o Bootstrapping Curves: • CVA vs CCR infrastructure and synergies • OIS Discounting • Use test and daily operations • Funded Discounting • Integrated hedging and capitalisation • Unilateral Collateralized • Collateralization in Non-Trade Currency • Funding in Non-Trade Currency o Calibration to Volatilities

• Valuation and Sensitivities

Day schedule: 09:00 – 17:00 Day schedule: 09:00 – 17:00 Day schedule: 09:00 – 17:00 Break: 10:30 – 10:45 Break: 10:30 – 10:45 Break: 10:30 – 10:45 Lunch: 12:30 – 13:30 Lunch: 12:30 – 13:30 Lunch: 12:30 – 13:30 Break : 15:15 – 15:30 Break : 15:15 – 15:30 Break : 15:15 – 15:30 Main Conference Day 1: THURSDAY 11th October

Interest Rates, Hybrids & Volatility CSA, Collateral, CVA, Discounting CVA & Basel III: Pricing & Trading Modelling Stream and Funding Stream Stream

08:00 – 08:50 08:00 – 08:50 08:00 – 08:50 Registration Registration Registration

08:50 – 10:30 08:50 – 10:30 08:50 – 10:30 Decently Steep – Approximating Rates, Funding and Collateral: Trading Bilateral CVA Spread and Basket Options Managing Derivatives Liquidity by Andrea Prampolini, Banca IMI by Jesper Andreasen, Danske Bank by Igor Smirnov, Banco Santander • A status update on discounting and fair • Implied volalitility expansions of spread • Simple theoretical framework value adjustments and basket options as geodesic distance • Hidden risks of collateral-implied • Derivative DVA hedging: CVA desk and problems. funding the Treasury • Numerical solution of geodesic • Differentiating funding sources • Pricing liquidity costs of novations problems: local and global solution. • Uncollateralised funding model • Payoff of a break up clause • Delta and Vega profiles of basket and spread options. • Higher order expansions, forward volatility, and single time step finite difference implementation. • Numerical examples.

10:30 – 11:00 10:30 – 11:00 10:30 – 11:00 Break Break Break

11:00 – 12:30 11:00 – 12:30 11:00 – 12:30 Valuing with Correlation Smile – Funding Valuation Adjustment DVA for Assets Why correlation smile is important, by Peter Whitehead, Deutsche by Chris Kenyon, Lloyds Banking how to mark it, which models to Bank Group use and avoid by Peter Austing, Barclays Capital • Origins and Consequences of the Credit • Assets that depend on existence of the Crisis company have DVA • The meaning of correlation smile, and • Tenor Basis • This DVA has two potential effects: how to mark it • CSA and OIS Discounting Accounting and Tax • Good versus bad models • Credit Value Adjustment- CVA • Hedging strategy • Why copulas are very bad (even if they • Risky Pricing with CVA only, DVA • Example: DVA on Goodwill for US price correlation correctly) only and both CVA and DVA banks 2007-2011 • A Simple Example- The plain vanilla IR • Conclusions Swap • DVA • Funding Value Adjustment • References

12:30 – 13:40 12:30 – 13:40 12:30 – 13:40 Lunch Lunch Lunch

13:40 – 15:10 13:40 – 14:25 13:40 – 15:10 Replication of CMS Spread Options Collateral, Funding and Wrong Way Risk and CVA by Sönke Blunck, Landesbank Discounting by Marc-Olivier Seguin, BNP Berlin by Vladimir Piterbarg, Barclays Paribas

• Setting: CMS Spread Options under • Using collateralized assets as building • Current situation on Wrong Way Risk an arbitrary copula model (i.e. two blocks in a model without a risk-free in Basel 3 marginal distributions and a copula) rate • Analysis of risk management P&L of • We construct explicitly a replication of • Multi-currency and choice collateral the CVA on simple product with credit CMS Spread Options by cash-settled • Examples correlation swaptions such that all first order • Overviews of existing credit hybrid marginal greeks (i.e. with respect to the models / wrong way risk models marginal distributions) are matched • First step: splitting the CMS Spread Option into two single-underlying payoffs such that all first order marginal greeks are matched 14:25 – 15:10 • Second step: Hagan replication of these Total Return under Consideration single-underlying payoffs by cash- of Collateral, Funding & Credit Risk settled swaptions by Emanuel Schörnig, Ithuba • Numerical tests: Replication of CMS Capital Spread Options using the SABR Model and the Gaussian Copula • Estimating cost of funding: different sources of funding, variable funding need due to collateral posting, haircuts • Additional consideration of credit risk, calculation of expected loss and impact on interest-rate risk management • Estimating total return over the life of an asset • Using total-return considerations to optimize time of asset disposal

15:10 – 15:30 15:10 – 15:30 15:10 – 15:30 Break Break Break

15:30 – 17:00 15:30 – 17:00 15:30 – 17:00 Risk Management in the Presence Funding, Collateral and Cross- Pricing and Trading CVA in the of Extreme Smiles: Are Simple Currency: Model Risk Basel 3 World Products Still Simple? by Massimo Morini, Banca IMI by Antoine Miribel, Deutsche Bank by Wolfgang Kluge, BNP Paribas • There is not only one FVA. Different • What affects the CVA charge • Reasons for the extreme smiles choices and their effects • Basel 2 and 3 highlights currently present in EUR swaption • Regulations, Distortions and Basel III • Basel 2 and 3 impact on price markets • Cross-currency and the strange case of • The old days of CVA trading • Effects of high vols on high strike the risk-free rate • Basel 3, a new constraint for risk swaptions for risk management on management products that are (in theory) simple, eg • CVA and CVA Var Optimization CMS swaps, CMS options • A simple approach to extrapolate the smile in areas that are not traded (or not arbitrage-free) keeping the traded area unchanged 17:00 – 18:00 17:00 – 18:00 17:00 – 18:00 Open Floor Q&A Sessions Open Floor Q&A Sessions Open Floor Q&A Sessions Pricing Space: Discounting, View Interest Rates and CVA Risk and Capital: VaR of CVA, CCR, Funding, Collateral, and Related Stream Panels CCP, Capital Charges & Basel III Pricing Adjustments Chair: Chair: Martin Baxter Massimo Morini Analyst, Fixed Income Quant Group, Head of Credit Models, Banca IMI Nomura International

Topics: Topics:

• Are Credit/Debit/Funding • Will uncollateralized counterparty adjustments really additive? risk be punished by excessive capital • Can all boil down to spreads and requirements? discounts? • When we add VaR/ES of CVA isn’t • Is the notion of an objective unique a proper assessment beyond current price to be abandoned? technology? • What if contagion is strong and Gap • Is global consistent valuation a necessity risk makes collateral effectiveness following the global nonlinear nature of limited? the adjustments? • How can one price and hedge Gap • Are current attempts of CVA risk effectively? restructuring (Papillon, Score, Fixed • Is global consistent valuation a CVA Margin Lending, Floating CVA necessity following the global Margin Lending) promising? nonlinear nature of the adjustments? • Can Floating CVA really address the • Consequences on systems wrong CVA volatility direction coming architectures? Is the industry ready? from upfront of fixed CVA? • Should collateral re-hypothecation be Panelists: forbidden? The 3.5 virtual factor • Will CCP help? Can CCP default? Jesper Andreasen Systemic Risk? Global Head of Quantitative Research, Danske Bank Panelists:

Bernhard Edegger Peter Jaeckel Interest Rates Options Trading, Erste Deputy Head of Quantitative Research, Group Bank VTB Capital

Chris Kenyon Giovanni Pepe Director, Quantitative Research, CVA, Banking Supervision Department, Banca Lloyds Banking Group d’Italia

Igor Smirnov Dmitry Pugachevsky Head of Fixed Income Quantitative Director of Research, Quantifi Research Europe, Banco Santander Emmanuel Ramambason Global Head of CVA and Fixed Income Trading, BNP Paribas

19:45 19:45 19:45 Gala Dinner Gala Dinner Gala Dinner – Restaurant Griechenbeisl – Restaurant Griechenbeisl – Restaurant Griechenbeisl Main Conference Day 2: Friday 12th October

Interest Rates: Modelling, Pricing & CVA, Modelling, Trading and CCR, Regulations & Capital Trading Stream Funding Stream Requirements Stream

09:00 – 10:30 09:00 – 10:30 09:00 – 10:30 Basel Impact on IR Derivatives Beyond the CVA Formula: Credit Risk on the Trading Business Modeling Trade-Specific Perimeter by Paul Howell, Nomura Calibration, Wrong Way Risk, and by Peter Dobranszky, BNP Paribas International Gap Risk with Exposure Sampling by Alexander Sokol, Numerix • Dynamics of credit spreads, bond basis, • Impact of market risk capital index skew and risk premium requirements • By replacing the CVA formula by an • Random matrix theory and the generic • Impact of counterparty credit capital expectation under a stochastic process spread curves requirements of exposures, exposure sampling • Recovery rates impacting capital method expands the range of models charges which can be applied to CVA • Migration risk versus spread risk • IRC plus VaR versus CCR plus CVA • Applications of the exposure sampling VaR method: • Double counting issues in the course of • Using trade-specific calibration with capital computations path-consistent CVA simulation to reduce the difference between current exposure obtained from CVA simulation and accounting MtM • Market and historical calibration of wrong way risk and gap risk models in CVA

10:30 – 10:50 10:30 – 10:50 10:30 – 10:50 Break Break Break

10:50 – 11:40 10:50 – 12:30 10:50 – 11:40 Pricing IR Derivatives in the Re-Thinking Valuations – CVA, Optimising Capital Charges and the Multiple Discount Curves- Illiquid Markets, and Model Risk Effects of Hedging Under Basel III Environment by Dan Rosen, R2 Financial by Dmitry Pugachevsky, Quantifi by Rade Plavsic Technologies • Basel III capital charges Funding curves – needs, setup, Model risk and CVA • The effect of hedging under developments Standardised and IMM approaches OIS vs FX market • CVA definition, models and • Optimising Basel III capital charges CSA and cheapest to deliver computation • Illiquid spreads and model risk • Risks and management • The weird life of bilateral CVA • Collateral management • Multiple personalities of CVA: internal models and accounting, Basel III, and Collateral quality in discounting banking book view • Hedging CVA and model risk • Funded vs collateralised positions • Calculating CVA market risk • Haircut vs discounting • Wrong-way risk, model risk and stress testing Blended discount curves Concluding remarks • Building • Risk calculation, segregation, aggregation

CSA optionality

• Concept, pricing, market observability and hedging 11:40 – 12:30 11:40 – 12:30 Accelerating Quantitative Finance Swinging Basel the Easy Way by Giovanni Pepe, Banca d’Italia by Hicham Lahlou, Xcelerit • Bullets to be confirmed • How to achieve dramatic software performance gains in derivatives pricing and risk management • Easy ways to leverage hardware accelerators (e.g. GPUs and multi-core) • The cost-benefit tradeoff of porting existing code or developing new code using hardware accelerators • Specific example (Interest Rate): LIBOR Swaption Portfolio Pricing

12:30 – 13:30 12:30 – 13:30 12:30 – 13:30 Lunch Lunch Lunch

13:30 – 15:00 13:30 – 15:00 13:30 – 15:00 An Efficient Implementation of Bond Repo Pricing with Funding Counterparty Credit Risk Capital the SABR Model by the Method of and Credit and CVA Conditional Integration by Martin Baxter, Nomura by Michael Pykhtin, Federal by William McGhee, RBS International Reserve Board

• Issues associated with the use of the • Bond Repos are an established product, • Counterparty credit exposure and CVA SABR approximation but involve several advanced pricing • Trading book loss under counterparty • Developing the conditional integration issues risk approach • Credit pricing issues: correlation • Economic capital: counterparty risk as • SABR Process vs SABR Approximation between counterparty and issuer, gap market risk • The SABR model in practice risk • Economic capital: counterparty risk as • Mean-reverting volatility extension • Funding pricing issues: proper handling credit risk of funding including haircuts and • Counterparty risk capital under Basel variation margin III • Exotic repo trades and features • Basel III CVA capital charge

15:00 – 15:15 15:00 – 15:15 15:00 – 15:15 Break Break Break

15:15 – 16:30 15:15 – 16:30 15:15 – 16:30 Practical Issues of OIS, CVA and CVA Building Blocks: Vanishing Systemic & Systematic Risk in Libor Market Models Options with Smile Credit Portfolio Management by Jörg Kienitz, Deutsche Postbank by Peter Jaeckel, VTB Capital by Christoph Konvicka, Bank Austria • OIS, CVA, etc. • The need for CVA with credit-asset • Two curve LMM (two approaches) correlation • Macroeconomic indicators and • Two curve LMM (correlation) • A time change generated by stochastic fundamental key corporate figures • Stochastic Volatility extension of LMM information arrival • Macroeconomic dependence modelling • Application to market data for Caps and • Asset response to credit information • Application to economic capital Swaptions • Volatility smiles calculation & credit risk stress testing • Incorporating further convexity • Case study CEE corrections

End of Conference End of Conference End of Conference The 8th Fixed Income Conference Steigenberger Hotel Herrenhof, Vienna 10th / 11th / 12th October 2012

Conference Fee Structure Early Bird Discount: 15% Early Bird Discount: 10% Regular Event Fee Before 29th June Before 31st August

c Conference + Workshop (£300 Discount): £2213.15 + AT VAT £2308.10 + AT VAT £2498.00 + AT VAT

c Conference Only: £1614.15 + AT VAT £1709.10 + AT VAT £1899.00 + AT VAT

c Workshop Only (No Discount): £899.00 + AT VAT £899.00 + AT VAT £899.00 + AT VAT

70% Academic Discount (FULL-TIME Students Only)

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