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Course Outline
Session 1 – Structured Products
- Defining a structured product
-
Categories of structured products
- Asset-backed securities
- Collateralised debt obligations
- Collateralised mortgage obligations
- The function of the special purpose vehicle
- Methods for pricing structured products
- Identification of key risks
- Accounting treatment for structured products
- Approaches to pricing a structured product
Session 2: Interest Rate Structures
- Embedded options & swaps
- Reverse floaters
- Leveraged swap-linked notes
- Bonds linked to rates other than libor
- Extendible and cancellable swaps
- Embedded swaptions
Session 3 – Options Contracts
- Overview of options
- Standard options terminology
- Traded vs OTC instruments
- Understanding the option premium
- Confirmation and settlement processes
- Volatility analysis
-
Option pricing methodologies –
- Binomial model
- Black Scholes
- Alternative approaches
- The significance of the yield curve
Session 4 – Swaps contracts
- Overview of swaps
- Defining swaps
- Quality spread differential
- Interest rate swaps
- Currency swaps
- Pricing interest rate swaps
- Swap valuation techniques
- Model risk and the critical nature of pricing feeds
- Confirmation and settlement
- Counterparty credit risk
- Collateral and collateral management
Session 5 – Introduction to Derivatives
- Defining a derivative
- Reasons for concern regarding derivatives
- Fundamental concepts
- Arbitrage and the original purpose of derivatives – the mutual coincidence of wants
- Benefits and applications of derivatives
- Hedging and trading strategies
Session 6 – Foreign Exchange
- Banking book v trading book distinctions
- Market conventions
- The language of foreign exchange
- The foreign exchange trading process
- Electronic and telephone trading platforms
- Dealing room controls
- Currency terminology
Session 7 – Forward Transactions
- Overview of forward contracts
- Purpose of forward contracts
- Pricing a forward contract and the importance of Libor
- Documenting a forward contract
- Overview of the ISDA
- Confirming and settling forward contracts
Session 8 – Futures Contracts
- Overview of futures contracts
- The role of the futures exchange
- The nature of futures contracts
- The role in trading
- Pricing a futures contract
- Hedging with futures
- The importance of margin accounting
- Confirmation and settlement
Session 9: Equity Swaps
- Fund management objectives
- Utilising a swap with an equity price index
- Example of cash flows of an equity swap
- Total return swaps and other credit derivatives
Session 10 – What goes wrong in practice
- Scenario modelling and derivatives
- Bankers Trust
- Barings
- Allfirst
- LTCM
- Enron
Session 11 – Introduction to Advanced Topics
- The management of interest rate risk
- Overview of collateralised instruments
- Counterparty credit risk and derivatives
- Legal risk and derivatives
- Value at risk and Exposure at default
- Loss given default and probability of default
- Stress testing and liquidity risk
- Scenario modelling
- The impact of international accounting standards, IAS 39 and IFRS 7
- Asset recognition and derecognition
21 Hours
