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Course Outline
Session 1 – Understanding Structured Products
- Defining a structured product
-
Categories of structured products
- Asset-backed securities
- Collateralized debt obligations
- Collateralized mortgage obligations
- The function of the special purpose vehicle
- Approaches to pricing structured products
- Identification of primary risks
- Accounting standards for structured products
- Methods for pricing a structured product
Session 2: Interest Rate Structures
- Embedded options and swaps
- Reverse floaters
- Leveraged swap-linked notes
- Bonds tied to indices other than LIBOR
- Extendible and cancellable swaps
- Embedded swaptions
Session 3 – Options Contracts
- Overview of options
- Key options terminology
- Exchange-traded versus OTC instruments
- Understanding option premiums
- Confirmation and settlement procedures
- The role of volatility
-
Option valuation techniques –
- Binomial model
- Black-Scholes model
- Alternative methodologies
- The significance of the yield curve
Session 4 – Swaps Contracts
- Introduction to swaps
- Definitions of swap terms
- Quality Spread Differential (QSD)
- Interest rate swaps
- Currency swaps
- Valuing interest rate swaps
- Swap valuation processes
- Model risk and the necessity of accurate pricing feeds
- Confirmation and settlement
- Counterparty credit risk
- Collateral and collateral management
Session 5 – Introduction to Derivatives
- Defining a derivative
- Reasons for concern surrounding derivatives
- Core concepts
- Arbitrage and the original intent of derivatives – achieving mutual coincidence of wants
- Advantages and applications of derivatives
- Hedging versus trading strategies
Session 6 – Foreign Exchange
- Distinction between banking book and trading book
- Market conventions
- Foreign exchange terminology
- The mechanics of trading foreign exchange
- Electronic and telephone trading platforms
- Dealing room controls
- Currency terminology
Session 7 – Forward Transactions
- Overview of forward contracts
- Objectives of forward contracts
- Pricing forward contracts and the critical role of LIBOR
- Documentation of forward contracts
- Introduction to ISDA standards
- Confirming and settling forward contacts
Session 8 – Futures Contracts
- Overview of futures contracts
- The function of the futures exchange
- Characteristics of futures contracts
- The role in trading activities
- Pricing futures contracts
- Using futures for hedging
- The importance of margin accounting
- Confirmation and settlement
Session 9: Equity Swaps
- Objectives of fund management
- Utilizing a swap with an equity price index
- Illustrative example of equity swap cash flows
- Total return swaps and other credit derivatives
Session 10 – Practical Failures in Derivatives
- Scenario modeling and derivatives
- The Bankers Trust case
- The Barings collapse
- The Allfirst incident
- Long-Term Capital Management (LTCM)
- The Enron scandal
Session 11 – Introduction to Advanced Topics
- Managing interest rate risk
- Overview of collateralized instruments
- Counterparty credit risk and derivatives
- Legal risk and derivatives
- Value at Risk (VaR) and Exposure at Default
- Loss Given Default (LGD) and Probability of Default (PD)
- Stress testing and liquidity risk
- Scenario modeling techniques
- The impact of international accounting standards, specifically IAS 39 and IFRS 7
- Asset recognition and derecognition principles
21 Hours
