Advanced Derivatives

Euromoney Learning Solutions

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Euromoney Learning Solutions


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About the course

A comprehensive course covering the key pillars of the modern derivatives world

This is a comprehensive five day programme, split into two halves: a detailed 2-day course on interest rate derivatives, and a 3-day course covering equities, FX, credit and XVA . The content is modular, with each day a standalone session on the key pillars of the modern derivatives world.

Module 1 – Interest Rate Derivtives

  • Day 1 Interest rate derivatives, swaps and cross-currency swaps, modern yield curve construction
  • Day 2 Interest rate options and exotics, CMS and applications, structured products

Module 2 – Equities, FX, Credit and XVA

  • Day 3 Equity and FX options, exotics, structured products and trading the volatility surface
  • Day 4 Credit derivatives, CDOs and structured credit
  • Day 5 Funding, XVA, and the new regulatory world

The emphasis is on a healthy mix of theory and client applications, and is illustrated throughout with real-life examples and case-studies.


Day 1 Interest Rate and Cross-Currency Swaps

Interest rate swaps

  • Quotation and terminology
  • Drivers of yield curve shape and level
  • Understanding swap spreads

Settlement and clearing

  • OTC versus central clearing
  • The ISDA Master and the role of the CSA
  • Collateral and netting
  • Briefly on CVA adjustments

Customer applications

  • Using swaps to hedge debt issuance
  • Asset swaps
  • Curve trades and other proprietary positions

Formal swaps pricing

  • From par rates to discount curves and forwards
  • Bootstrapping the discount curve
  • The choice of the discount curve – why OIS?
  • Tenor basis and projection curves
  • Modern yield curve construction

Cross-currency swaps

  • Mechanics of a CRX swap
  • Understanding the drivers of the CRX basis spread
  • Customer applications   Day 2 Interest Rate Options

Caps, floors and collars

  • Mechanics and settlement


  • Structure and mechanics
  • European versus Bermudan settlement

Constant maturity swaps

  • Mechanics, quotation and settlement
  • Understanding the convexity adjustment
  • Model-independent replication and hedging of the convexity
  • Applications in liability-management

Understanding the volatility surface

  • Drivers of the skew and smile
  • Normal versus lognormal vol, CEV models, shifted lognormal
  • Introduction to stoch vol and SABR

Introduction to interest rate modelling

  • Single-factor models
  • Mult-factor models and the LMM

Structured products

  • Callable bonds
  • Embedding options for yield-enhancment: capped FRNs, reverse floaters

Corporate liability management Interest rate exotics and structured products

  • Digitals and range accruals
  • Target redemption structures
  • CMS spread-linked

Day 3 Options, Exotics and Structured Products

Option fundamentals

  • The basic payoff diagrams
  • Cash versus physical settlement
  • Popular option combinations and strategies
  • Volatility - what it is and why it matters

Option pricing

  • Intuitive drivers of the premium
  • Binomial trees
  • Monte Carlo
  • Black-Scholes

Option risk-management

  • The delta hedge
  • The fundamental role of gamma
  • Gamma versus theta

Understanding and trading volatility

  • Defining implied volatility
  • Defining the vol surface, smile and skews
  • Hedging smile and skew risk, risk-reversals and butterflies
  • The role of stochastic vol in understanding smile and skew
  • Quantifying the risk - vanna and volgamma
  • Introduction to local and stochastic vol models

Exotics and structured products

  • Digitals and range-accruals
  • Barrier options and client applications
  • Static hedging of barrier options
  • Autocallables and accumulators
  • Cliquets and the problem of forward vol

Day 4

Credit Derivatives

Mechanics of a CDS contract

  • Defining a credit event
  • CDS setttlement

Pricing and risk

  • The credit triangle – relating credit spreads to default probability (PD), exposure (EAD) and expected recovery (LGD)
  • Risky discounting
  • Standard contracts, fixed spreads, computing the upfront
  • CS01 and convexity

Hedging bond positions

  • Constructing the hedge – default risk or spread risk?
  • Trading the cash-CDS basis
  • Drivers of the basis

CDS indices (iTRAXX and CDX)

  • Mechanics and settlement
  • Intrinsic spread and skew
  • Sub-indices

Tranching and correlation

  • Synthetic single-tranche CDOs
  • Credit correlation and why it matters
  • Understanding the tranche delta

Structured credit trading

  • Tranche trading and convexity
  • Nth-to-default baskets

Day 5

Counterparty Risk, Funding and XVAs

Key concepts and metrics of counterparty exposure

  • When exposure is non-static – why derivative are tricky
  • Key metrics of exposure for derivatives: EL, EE, EPE, PFE

From exposure to Expected Loss

  • Monte carlo simulation and semi-analytical methods
  • Computing EL for some simple positions: IRS, forward FX

Pricing for default risk

  • The traditional approach versus the CVA approach

Computing the CVA charge for the most common positions

  • Shortcut calculational tricks
  • Mitigating the exposure on cross-currency swaps

Wrong-way risk

  • Examples of wrong-way (and right-way) risk
  • Computing the CVA charge with wrong-way risk
  • The new CVA capital charge in Basel III

DVA – adjusting for your own risk

  • DVA for some common positions
  • Is DVA real? Why it remains controversial

CSAs and collateral

  • The importance of netting
  • CSA key terms
  • The dual role of the CSA – collateral as funding

Building a funding curve

  • The choice of OIS as a core discount curve
  • What is meant by ‘CSA discounting’
  • The ‘cheapest-to-deliver’ option in collateral posting

Understanding the Funding Valuation Adjustment (FVA)

  • Adjustment for asymmetric collateral terms
  • Avoiding the trap of double-counting FVA and DVA
  • Other XVA adjustments

The new regulatory world

  • Central clearing
  • Regulatory legislation: Dodd-Frank, EMIR, MiFiD and the rest
  • What can we expect from Basel IV?


Richard Fedrick

Richard started his career in 1988 in the Derivatives Product Group at Morgan Stanley, which he joined after three years of post-grad research in Theoretical Physics. He spent three years as a rates and FX structurer at Morgan Stanley before moving to a similar role at Deutsche Bank in London. In...

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Advanced Derivatives at Euromoney Learning Solutions

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