Interest Rate Derivatives 1: Hedging and Managing Risk
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If you want to get more insights in the world of interest rate derivatives, this course is really useful for you.
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Short course
In New York (USA) and London
Dominate the essential part of the financial marketplace!
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Type
Short course
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Location
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Duration
4 Days
Interest Rate Derivatives are an essential part of the financial marketplace. This comprehensive programme will equip you to use, price, manage, market and evaluate standard interest rate derivatives, currency and asset swaps.
The course starts with the building blocks and uses plenty of practical exercises covering hedging, valuation and risk management to ensure delegates gain a thorough grounding in these instruments.
More than half of the programme is devoted to intensive, practical workshops, including a number of simulations using Microsoft Excel functions and macros, which participants can take away for immediate implementation.
This course is also available remotely via LFS Live.
Facilities
Location
Start date
Start date
Start date
About this course
- Explore the relationship between futures, forwards, and FRAs
- Understand the four equivalent expressions of a yield curve: par curve, zero curve, discount curve, and projection curve
- Construct hedges using futures, swaps, and bonds
- Price and revalue swaps
- Structure asset and liability (new issue) swaps
- Price and structure cross-currency swaps
- Design, price and use caps, floors, collars, and swaptions
- Structure and market combinations of derivative products
This course is designed for anyone who wishes to be able to price, use, market, manage or evaluate interest rate derivatives and currency swaps including:
- Directors, treasurers, dealers, and trainees
- Corporate finance and investment managers
- Accountants, auditors, and IT personnel
- Derivatives marketing executives, consultants, advisors, and brokers
Basic knowledge of Microsoft Excel and some general understanding of financial markets is assumed, but the basics are covered in detail at the start making the course accessible to a wide audience.
Learning Objectives:
- Gain familiarity with modern multi-curve interest-rate derivatives pricing
- Learn how to value and hedge a swap portfolio
- Price and structure derivative products using caps, floors, and swaptions
- Learn how to build a yield curve from alternative instruments, and then bootstrap discount factors and forward curves
Reviews
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If you want to get more insights in the world of interest rate derivatives, this course is really useful for you.
← | →
Course rating
Recommended
Centre rating
Treasury Advisor
This centre's achievements
All courses are up to date
The average rating is higher than 3.7
More than 50 reviews in the last 12 months
This centre has featured on Emagister for 16 years
Subjects
- Swaps
- Market
- IT risk
- Risk
- Derivatives
- Mechanics
- Interest Rate Options
- Options
- Managing Risk
- Hedging swaptions
- Volatility smile
- SABR
- Stochastic volatility
- Risk Neutral Valuation
- Yield Curve Building
- FRAs
- Hedging strategies
- Globex
- OIS mechanics
Teachers and trainers (1)
Richard Fedrick
Teacher
Richard Fedrick delivers training programmes globally in all areas of finance with emphasis on interest rates and FX, derivatives in general and exotics in particular, structured products and risk management. He started his career in 1988 in the Derivatives Product Group at Morgan Stanley, which he joined after three years of post-graduate research in Theoretical Physics. In 1993 Richard joined General Re Financial Products, a AAA-rated derivatives boutique that rapidly became established as one of the world’s leading derivatives trading operations.
Course programme
Fundamentals
- Time value of money
- Calculation of cashflows using a variety of money market and bond conventions and compounding intervals
- Money-market (Libor and OIS) mechanics, background to Libor controversy
- Understanding the four representations of a yield curve: par rates, zero, the discount curve, the forward (projection) curve
- Discount factors and their meaning
- Zero coupon rates, why they are useful, interpolation techniques
- Introduction to bootstrapping and calculation of forward rates and discount curves
- Interest rate risk and DV01
Bonds and ‘Bond Maths’
- Basic bond mechanics
- Price and yield: clean vs. dirty price, YTM defined
- The limitations of yield to maturity
- Z-spreads
- Quantifying price sensitivity, duration, and convexity
Futures and FRAs
- Example of short term interest rate risk
- FRA contract details
- Using FRAs to manage short term interest rate risk
- FRA Settlement and cashflow calculations
- Eurodollar futures contract details
- Using Futures to manage short term interest rate risk
- Trading mechanics
- How the exchange works: settlement and margin
- Globex
Day Two
Futures and FRAs (cont.)
- Comparison: Forwards, Futures, FRAs
- Convexity differences between futures and FRAs
- The impact of convexity on pricing
- Building a Libor/swaps curve: depos, FRAs or futures?
- Constructing the long-end of the curve (swaps)
- Bootstrapping the quasi-discount curve, and parameterization as zero-coupon curve
- Deriving the forward (projection) curve
- The price of liquidity: tenor basis and decoupled forward Libor curves
- Implications of tenor basis for yield curve construction
- The choice of the discount curve – Why OIS?
- From the overnight rate to a full yield curve, understanding OIS swaps
- Bootstrapping a discount curve from OIS par rates
- The background to swaps
- Today’s market and jargon
- Quoting swaps: absolute rates or spreads?
- Market conventions and structures (A3, SS, QQ, IMM, etc.)
- IRS as a bond and FRN
- Pricing for zero NPV
- Intuitive swap pricing, PV01
- Formal multi-curve swap pricing
- Close-outs, unwinds and assignments
- Swap clearing
- CSA, Standard CSA, CVA, and counterparty credit risk
Day Three
Interest Rate Swaps (cont.)
- Basic market jargon: rally, sell-off, bull steepener, bear flattener, butterfly
- Understanding the P&L in the book: MTM, carry and forward rates
- New issue swaps
- Asset swaps and why they matter
- Par-par vs. market-value (‘proceeds’) asset swaps
- Hedging a swap book
- Managing risk at the short-end – Constructing a futures strip hedge
- Managing risk at the long-end – Bucket deltas, equivalent positions, and hedging with swaps
- Short-term FX instruments: spot, FX outright, FX swap
- Long-term Currency Swap
- The market today
- Cross-currency basis swaps and market forces
- Using IRS and basis swaps to give fixed-floating, fixed-fixed currency swaps
- Discounting curves adjusted for cross currency basis
- Definitions and structure
- Intrinsic value, Time value, Volatility
- Simple valuation model
- Hedging and an introduction to risk neutral valuation
- Sensitivities (“The Greeks”) and how they work
Day Four
Interest Rate Options – Combinations
- Cap-floor-swap parity
- Zero cost collars
- Participating caps
- Embedded caps
- Swaption mechanics and valuation
- Cash settlement vs. physical delivery
- Straight-line vs. zero-coupon settlement
- Caps vs. swaptions, arbitrage bounds on vols
- Implementing market views
- Single swaption breakeven analysis
- Payer/receiver spreads under different conditions
- Constructing callable swaps
- Hedging swaptions
- Understanding and quantifying smile and skew
- Hedging with RRs and Flies
- Drivers of the smile and skew #1 – The role of stochastic volatility
- Drivers of the smile and skew #2 – Model mis-specification
- Defining interest rate dynamics: Normal, Lognormal or CEV?
- Quoting vols: Lognormal (Black) or absolute (Normal)
- The needs for a better model
- Introduction to SABR
- Briefly on arbitrage-free models (HJM, LMM)
Interest Rate Derivatives 1: Hedging and Managing Risk