Friday October 30, 2009

09.00-09.15 Registration   09.15-09.45 Model risk and parameter uncertainty Henrik Jönsson, EURANDOM 09.45-10.15 Quantitative sensitivity analysis Jessica Cariboni, JRC 10.15-10.45 MBS/ABS- with no market can these products be priced Sanja Hukovic, UBS 10.45-11.15 Break   11.15-11.45 The pricing of subprime mortgage risk in good times and in bad Martin Scheicher, ECB 11.45-12.15 Securitization, Distressed Assets and Dynamic Credit Portfolio Management Joao Garcia, Dexia Holding 12.15-14.00 Lunch   14.00-14.30 Illiquidity in the credit markets – Solving the hen and the egg problem? Heinz Martin Sorge, Pepperminds GmBH 14.30-15.00 Business-oriented valuation of ABS portfolios Matthias Föhl, d-fine GmbH 15.00-15.30 Break   15.30-16.00 ABS in Europe – What does the future hold? Damian Thompson, RBS 16.00-16.30 ABS Standardization and the Impact on Market Liquidity Marc Haguenauer, ICP Capital 16.30 Closing Guido Bichisao, Head of Financial Engineering & Advisory Services EIB

Abstracts

Marco Angheben, ESF

Marco Angheben is Director at the European Securitisation Forum. He is the staff advisor of a number of committees including the Market Standards and Practices Committee, the Investors Committee, the Trustees Committee and the Italian, Dutch and Spanish Committees. He regularly deals with regulators, standard setters, central banks and market participants on a number of securitisation market practice and data issues. He participates in technical working groups dealing with securitisation of the European Central Bank, the Committee of European Banking Supervisors and the European Commission. Marco holds a degree in Economics and Finance at Ca' Foscari University in Venice and is a member of the UK CFA Institute.

"Current Regulatory Initiatives for Structured Finance Products"

• Valuation Issues;
• EU and Global regulatory initiatives
• Industry transparency initiatives

The presentation covers the most recent discussions with IOSCO, CESR, the European Commission and other regulators, central banks and policy makers surraunding the improvement of the current infrustructure for post-trade transparency. It also describes the industry initiatives aimed at improving valuations, price discovery and transparency overall for structured finance products.

Jessica Cariboni, Joint Research Center

Jessica Cariboni, born in 1976, graduated with honors in Physics at University of Milan, Italy, in 2000. From March 2001 to December 2002 junior quantitative analyst in one of the leading Italian companies in financial investments, Nextra Investment Management SGR. In 2007, she completed her PhD in financial modeling at the Department of Mathematics of the Katholieke Universiteit of Leuven (Belgium). From 2003 she has been working as researcher at the European Commission Joint Research Centre. Her main fields of research are financial modeling, uncertainty and sensitivity analysis, credit risk modelling and Lévy processes. She is also co-author of a book on sensitivity analysis and a book on credit risk modelling published by Wiley.

"Sensitivity analysis: theory and practice"

Complex mathematical and computational models are increasingly used in all areas of society, science and technology. In general terms, sensitivity analysis is the assessment of the sensitivity of the outputs to small changes in the inputs of these models. Whether building or using models, it is widely accepted that sensitivity analysis is an essential ingredient of its evaluation. The talk will give a general introduction to the scope of sensitivity analysis, focusing on best practices and most used methods.  Some applications of sensitivity analysis to financial modeling will be also presented.

Matthias Föhl, d-fine GmbH

"Business-oriented valuation of ABS portfolios"

Banks and investment funds have to value their ABS portfolios continuously. That valuation needs to be achieved rapidly, based on diverse information about the pool assets and various market indications. We show the common situations in practice where ABS valuations are required, and present various approaches for those valuations using different degrees of sophistication. These methods are afterwards illustrated by the analysis of a typical SME securitisation.

Joao Garcia, Dexia Holding

"Securitization, Distressed Assets and Dynamic Credit Portfolio Management"

1) Pricing distressed assets;
2) Managing portfolios of securitization instruments: the old and the new;
3) Correlation, capital costs and the rule of securitization.

Marc Haguenauer, ICP Capital

Marc Haguenauer has been working for ICP Capital for a year within the Advisory team focusing on balance-sheet transactions and repackaging. Prior to joining ICP, he was a member of the Structured Real Estate Finance Group at Royal Bank of Scotland in London for two years. As an Associate Director, he helped develop the CRE CDO activity as well as structure and complete CMBS and balance sheet deals. Previously, he structured MBS and CLOs while working with Natixis in Paris for 5 years. Mr. Haguenauer graduated from ESC Reims business school. He totals about 7 years of experience in the European ABS area.

"ABS Standardization and the Impact on Market Liquidity"

Sanja Hukovic, UBS

Sanja Hukovic holds Ph.D. in mathematics from Brown University and an MBA from University of Rochester's Simon School of Business. Sanja was an Assistant Professor at the Department of Mathematics at the University of Massachusetts-Amherst. Since 2003, Sanja works for UBS Quantitative Risk Control. She first worked in mortgage model valuation and now heads QRC Equities, FXMM and Client Portfolio teams.MBS/ABS- with no market can these products be priced

"MBS/ABS- with no market can these products be priced"

• Cash product pricing in absence of market prices
• MBS/ASB business flow
• prepayment and default curves
• scenario based MBS/ABS pricing
• use of indices or proxies to obtain prices

Peter Jones and James West, Standard & Poors

"Practical Approaches to Valuation of European ABS in Illiquid Market"

• Different Valuation Approaches in use
• Data, Analytic and Cashflow requirements
• Transparency of input assumptions for Valuation
• Case Study

Henrik Jönsson, Research fellow, EURANDOM

Henrik Jönsson is a research fellow in the Multivariate Risk Modelling (MRM) group at Eurandom, an independent research institute sited in Eindhoven, The Netherlands, since 2006. His research is focused on asset backed securities and credit derivatives pricing. He has been working on credit risk modelling and credit derivatives pricing using jump models (Lévy models) and is currently active in the research project "Quantitative analysis and analytical methods to price securitization deals", sponsored by the European Investment Bank via its University Research Sponsorship programme (EIBURS).  Henrik Jönsson conferred a Ph.D. in Applied Mathematics in Sweden 2005 and is a former Marie Curie European Research Fellow (2006-2008).

"Model risk and parameter uncertainty"

The classical risks of asset-backed securities (ABSs) relate to the performance of the asset pool and the structural features of the transaction: credit risk, prepayment risk, market risk, reinvestment risk, liquidity risk, counterparty risk, operational risk and legal risk. Assessment of a securitization transaction is based on assessments of these risks and how well the structure manages to mitigate them. In the light of the credit crisis new risks have come in focus, for example, model risk and parameter uncertainty. Model risk refers to the fact that the outcome of the assessment of ABSs depends on which quantitative model is used to derive, for example, defaults in the asset pool backing the ABSs. The uncertainties in the parameters used as input to these models add to the uncertainty of the output of the assessment. We give example of both model risk and parameter risk and show the significance the model choice and parameter values have on the assessment of ABSs.

Laila M. Kollmorgen and Luke Mellor Forseti Capital

Laila M. Kollmorgen, CFA, Trading and Advisory, Forseti Capital.
She brings a wide breadth of familiarity with various fixed income instruments ranging from her experience in risk management of Latin American debt securities to trading US and European ABS/RMBS/HEL and portfolio management of European ABS.  While at Merrill Lynch in New York, she traded CMOs, ABS, HEL, and options on MBS, US Treasuries, US Financial Futures, and Swaptions.  From her role as a co-portfolio manager of a €10bn structured products portfolio at HSH Nordbank in Hamburg, Germany, she brings a good understanding of managing a mezzanine rated portfolio. Laila was head of the Secondary ABS Trading Desk at BNP Paribas in London and the US Mortgage Options Trading Desk at Merrill Lynch, New York. She founded Kollmorgen Financial Partners, providing consulting services to major European banks, with an emphasis on fundamental analysis and valuation. She is currently working with a major European bank, providing valuations and advisory work on over €10bn notional in European and US structured product.

Luke Mellor, Advisory and Cash Flow Analytics, Forseti Capital
Luke Mellor has spent his entire 23-year career focused on European ABS, which has established him as one of top quantitative analysts in securitization. He is known as ‘Mr. Cash Flow’ in many European ABS circles.  As the founder of Creative Capital Partners in 1999, Luke provides advisory services with an emphasis on securitization to a range of financial institutions, regulators and corporations such as the Carlyle Group, WestLB, Banco Santander, Standard Bank, Stancroft Trust, Nedbank Capital Markets South Africa, the Financial Services Authority UK, and NIB Capital The Hague.  Luke was Head of the International Securitisation Group at ABN AMRO and has held senior positions at Barings Brothers and The Mortgage Corporation (subsidiary of Salomon Bros.).  He was the Quantitative Analyst on the second European RMBS securitisation in 1987, headed the group at ABN Amro that conducted the first multi-currency RMBS deal in 1998 and the first Swedish multi-family securitisation in 1998.

"Mark to Valuation Techniques in an Uncertain Market"

In the absence of accurate pricing quotes, more and more financial institutions are seeking alternative methods for price discovery. These methods not only have to be bedded in reality but they must bear scrutiny from third parties such as auditors and regulators. During the module the underlying tenets of “mark to valuation” techniques will be discussed. We will examine:

• Where it is appropriate to use over-the-counter platforms and compared to bespoke cash flow models. Advantages and pitfalls in both approaches.
• Availability and quality of new issue and ongoing rep line data together with examples of good and not-so-good trustee reports.
• How do deal with valuation issues of credit dependent counterparties and their effects on the deal.
• Determining what is the new normalised or steady state environment for different asset classes in different jurisdictions.
• How to determine the new levels of stressing.
• Covered bonds and secured lending – the joint default approach.
• The New World Order  - recommend changes for reporting standards and eligibility criteria.

Benedicte Pfister, Managing Director, Structured Finance Group, Moody’s Investor Service, UK

Benedicte Pfister is Managing Director in Moody’s structured finance team, based in London. Benedicte is currently responsible for the ABS franchise in Europe, the Middle East and Africa. Prior to this, Benedicte spent two years in Milan as General Manager of Moody’s Italia, responsible for both Moody’s structured finance and fundamental rating franchises in Italy. Benedicte has ample experience in the ratings of CMBS / Property-Related Operating deals, Esoteric ABS and Emerging Market transactions. She has also worked on Auto/Consumer Loan deals, RMBS and Repackaged Bonds in Europe. Prior to joining Moody’s in 1998, Benedicte spent several years in the Equity Capital Market team of Credit Suisse First Boston and in BNP Paribas’ credit department in London. Benedicte studied Plasma Physics at Orsay University as well as Finance at ESSEC and Business Law in Sorbonne (France).

"Moody's methodology for rating EMEA SME ABSs"

- Introduction to Moody's ABS rating methodology and models
- Rating of EMEA SME ABSs
- V score and Parameter Sensitivity

Damian Thompson, Royal Bank of Scottland

Damian is Head of ABS Structuring at RBS in London.  He has 17 years of experience of European structured finance experience, his previous roles having included Co-Head of Securitisation at RBS, and Head of European ABS at Fitch Ratings.

"ABS in Europe-What does the future hold?"

Martin Scheicher, European Central Bank, Directorate General Research

Martin Scheicher is a senior economist in the European Central Bank. His main research interest is credit risk modelling. His most recent work has focused on the market pricing of credit risk. His work includes papers published in the Journal of Banking & Finance or the Journal of Futures Markets. He was educated at the University of Vienna and London School of Economics.

"The pricing of subprime mortgage risk in good times and in bad"

This paper investigates the market pricing of subprime mortgage risk on the basis of data for the ABX.HE family of indices, which have become a key barometer of mortgage market conditions during the recent financial crisis. After an introduction into ABX index mechanics and a discussion of historical pricing patterns, we use regression analysis to establish the relationship between observed index returns and macroeconomic news as well as market-based proxies of default risk, interest rates, liquidity and risk appetite. The results imply that declining risk appetite and heightened concerns about market illiquidity—likely due in part to significant short positioning activity—have provided a sizeable contribution to the observed collapse in ABX prices since the summer of 2007. In particular, while fundamental factors, such as indicators of housing market activity, have continued to exert an important influence on the subordinated ABX indices, those backed by AA and AAA exposures have tended to react more to the general deterioration of the financial market environment. This provides further support for the inappropriateness of pricing models that do not sufficiently account for factors such as risk appetite and liquidity risk, particularly in periods of heightened market pressure. In addition, as related risk premia can be captured by unconstrained investors, ABX pricing patterns appear to lend support to government measures aimed at taking troubled assets off banks’ balance sheets—such as the US Troubled Asset Relief Program (TARP).

Heinz Martin Sorge, PepperMinds GmbH

"Illiquidity in the credit markets – Solving the hen and the egg problem?"

The present international financial system has been shown recently to incorporate elements of inherent instability. Liquidity risks of financial institutions deserve a closer look in this context. Bank runs of the past have clearly demonstrated the possibly devastating effects caused by a lack of liquidity. However, it was thought for a long time that modern risk management practices have essentially put liquidity risks under effective control. Starting with the failures of Sachsen LB and IKB in 2007 lack of liquidity has attained a prominent role in the collapse of financial institutions. The illiquidity of markets in asset-backed securities and the shutdown of the asset-based commercial paper market have destroyed once popular off-balance sheet instruments like SPVs and SIVs and contributed to the downfall of sponsoring institutions. No consensus has emerged yet to which extent illiquidity is at the heart of the crisis or just a symptom. The answer, of course, determines how one is going to judge efforts like the TARP facilities to improve ABS market conditions. Acknowledging considerable uncertainty about the relationship between illiquid credit markets and failure of financial institutions there are certain lessons to be drawn from a liquidity risk management prospective as well as from a regulatory point of view.