Derivatives & Market Dynamics

Course review:

A very comprehensive and dynamic 4-day training programme is designed to provide delegates with the knowledge required to understand the implications of derivative and structured product transactions. The key features of swaps and options are reviewed, followed by an analysis of the application, pricing, hedging and risk management processes used in the market.

As well as case studies and projects each delegate gets to practice the skills learnt in a state-of-the-art trading floor specifically designed for training.

In addition to the more traditional exercises and case studies, the programme includes a number of very interactive activities that are both highly educational and engaging for delegates. Throughout the 4 days of training delegates will spend time on the trading floor putting into practice the theory. Each morning the delegates will also be engaged in the Morning Trading Game.

Day 1: Swap Pricing

Module 1: Introduction and Review of Swap Principles

-Course Introduction
- The role of derivatives in a bank
- Review of Swap Concept
- Swap market overview
- Market conventions and quotations
- Swap applications
- Principle of comparative advantage

Module 2: Swap Mathematics

-Swap pricing and valuation concepts

- The zero coupon curve

- Calculating discount factors from zero rates

- Generating forward rates from discount factors

- Linking swap rates and discount factors

- Building the discount function

Module 3: Swap Valuation

- The principles behind swap valuation

- Valuing an interest rate swap

- Understanding forward rates

- The link between swap prices and forward rates

Module 4: Non Standard Interest Rate Swaps

- Non constant principal swaps

- Forward Starting Swaps

- Valuing non-standard swaps

- Basis swaps

- Par asset swaps

- Accordion swaps

Day 2: Understanding Swap Risks

Module 5: Identifying Swap Risks
- Identifying sources of swap risk
- Different types of market risk
- Transaction versus portfolio hedging
- Cash flow bucketing
- Swap spread risk
- Swap credit risk
Module 6: Managing & Hedging Swap Risks
- Swap hedging products
- PVBP and other risk measurements
- Hedging with STIR futures
- Tailing the hedge & compounding error
- Hedging with bond or swap futures
- Swap carry and slide
Module 7: Other Types of Swaps
- Zero coupon swaps
-Overnight index swaps
- Basis Swaps
- Overnight Index Swaps
- LIBOR-OIS spread
- Cross currency swaps
- Inflation swaps
- Equity swaps
Module 8: Option Review
- Option overview
- Option market terminology
- Calls versus puts on exercise
- Option pay-off diagrams
- Intrinsic versus Time Value
- American versus European options
Day 3: Understanding Options

Module 9: Principles of Option Pricing
- Option pricing variables

- Principles of option pricing

- Option pricing models

- The Black Scholes pricing model

- Binomial and Monte Carlo pricing techniques

- Put-Call Parity

Module 10: Option Risk and Volatility

- Overview of option risks
- Delta and Gamma
- How time influences option prices
- Vega and Rho
- Volatility analysis in depth
Module 11: FX and other Types of Options
- Foreign Exchange options
- At the Money Forwards and quoting volatility
- Risk reversals
- Interest rate caps, floors and collars
- Swaptions
- Bond options
Module 12: Exotic Options Primer
- Introduction to exotic options
- Path dependent options
- Barrier options
- Time dependent options
- Digital options
- Hedging strategies with digital options
Day 4: Structured Products
Module 13: Introduction to Structured Products
- What are structured products?
- Why invest in structured products?
- Issuer motivations
- Major product categories
- The role of capital protection
- Potential for enhanced returns
Module 14: Key Structured Product Categories
- Types of capital protection
- The role of zero coupon bonds
- Buffered notes
- Accelerator style products
- Upside caps on return
- Adding in downside exposure
- Range notes and range accrual notes
Module 15: Pricing Issues and Market Terminology
- The role of interest rates
- The impact of maturity and volatility
- Secondary pricing effects
- Forward pricing
- Other factors that influence pricing
- Early redemption features
- Snowballs, wedding cakes and mountain ranges
Module 16: Client Suitability and Building a Structured Product
- Understanding a products features
- Identifying risks
- Product pitfalls to avoid