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About the course
Interest Rate Derivatives are an essential part of the financial marketplace. This intensive three-day programme, Advanced Interest Rate Derivatives, will teach you advanced techniques to use, price, manage and evaluate interest rate and cross-currency derivatives.
The first day of the course explores interest rate swaps, from terminology, settlement and clearing through to modern yield curve construction and cross-currency swaps. We will then proceed to examine interest rate options, exotics and structured products in detail.
This hands-on course contains a healthy mix of theory and client applications, which are illustrated and examined through real-life examples, practical exercises and group discussions.
Summary of course content:
- 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
- Day 3 Constant maturity swaps, modelling interest-rate volatility, the impact of stochastic volatility, SABR
Why attend this course?
- Gain familiarity with modern multi-curve interest-rate derivatives pricing
- Learn how to build and analyse yield curves and then bootstrap the discount curve
- Improve your understanding of interest rate derivatives documentation, clearing and settlement
- Discuss potential customer applications of interest rate swaps
- Review formal swaps pricing, from par rates to discount curves and forwards
- Understand the mechanics of a cross-currency swap (CRX) and the drivers of the CRX basis spread
Day 1: Swaps
Interest rate swaps
- Quotation and terminology
- Drivers of yield curve shape and level
- Understanding swap spreads
Settlement and clearing
- OTC versus central clearing
- Collateral and netting
- Briefly on CVA adjustments
- 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 constructiuon
- 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
- The exercise decision for Bermudans
- Managing a trading book
- Hedging funding exposures
- Conditional curve trades and other prop positions
- Callable bonds
- Embedding options for yield-enhancement: capped FRNs, reverse floaters
- Corporate liability management
Interest rate exotics and structured products
- Digitals and range accruals
- Target redemption structures
Day 3: Options, Exotics and Structured Products
Constant maturity swaps
- Mechanics, quotation and settlement
- Understanding the convexity adjustment
- Model-independent replication and hedging of the convexity
- Applications in liability-management
- CMS spread-linked
Understanding the volatility surface
- Drivers of the skew and smile
- The key role of stochastic vol
- Normal versus lognormal vol, CEV models, shifted lognormal
- Hedging skew and smile
- Introduction to stoch vol and SABR
Introduction to interest rate modelling
- Single-factor models
- Mult-factor models and the LMM
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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