Interest Rate Derivatives

In addition to your class tuition and study materials, you will receive the following:


Complimentary e-learning module
Case Study

• -Identifying mis-priced futures
• -Hedging a portfolio using caps and floors

Exercises

• Bootstrapping Treasury securities to derive the spot-rate term structure hedging a bond portfolio using swaps
• Using STIRs for speculative purposes

Other Extras

• Certificate of attendance

Level: Intermediate


Synopsis:
Swaps, caps, floors and swaptions have revolutionised the way that corporates, banks and investors think about interest rate risk. This course will help you to understand these structures inside out, where their prices come from and how they are used for profitable trading and as protection for portfolios.


At the end of the course participants will be able to: Review futures contracts and their features . Examine swaptions, interest caps and interest rate options in hedging risk . Understand the risk and benefits with forward markets and contracts . Explain a range of swap structures . Examine interest rate products for risk management purposes . Review the characteristics of interest rates (short & long) .


Prerequisites:
Understanding Derivatives, Understanding Fixed Income


Suitable For:
Anyone wishing to focus their derivatives knowledge onto interest rate risk and how to manage it.


Short and long term interest rates

• Understanding interest rates, currency, maturity, time, credit, liquidity
• Cash flows - present and future value

Characteristics of interest rates

• Money rates through to bond yields
• Uses of yield curves in financial management
• Different approaches to measuring yield
• Deducing the zero-coupon yield curve from the observed yields on coupon bearing treasuries

Short and long term interest rate products for risk management

• Forward rate agreements (FRAs)
• Comparing SWAPs with FRAs
• Asset swaps (investment arbitrage)
• New issue arbitrage
• Risks in linking swaps with other products

Swaps

• Swaps defined: terminology and concepts
• Types of swaps: interest rate, equity, currency
• Basic swap pricing
• Applications of swaps: corporates, investors, hedge funds

Risks & benefits involved with forward markets and contracts

• The key characteristics of forward contracts
• Pricing and valuation
• FRAs, swaps
• Commodity
• Foreign exchange
• FX arbitrage problem

Pricing and valuation of STIR futures contracts

• Spot and money rates to futures
• Liquidity of hedges
• Stack vs. strip hedges

Bonds futures contracts

• Cash and carry arbitrage
• Reverse cash and carry arbitrage
• Duration-based hedge ratios

Swaptions - options on swaps

• Extending options to interest rate products
• Interest rate risk management with swaptions

Applications of interest rate caps and floors

• Concepts, definitions and characteristics
• Caps as a series of put options of a hypothetical debt security
• Applications in financial management

Using interest rate options to hedge risk

• Trade-offs between caps, collars and swaps in hedging risk
• Comparison of a partial swap vs. full cap