Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

• What is a structured product?
• Types of structured product
  • Asset back securities
  • Collateralised debt obligations
  • Collateralised mortgage obligations
• The role of the special purpose vehicle
• How to price structured products
• What are the key risks?
• Accounting for structured products
• How to price a structured product

• Embedded options & swaps
• Reverse floaters
• Leveraged swap linked notes
• Bonds linked to rates other than libor
• Extendible and cancellable swaps
• Embedded swaptions

• Introduction to options
• Options terminology
• Traded vs OTC
• Option premium
• Confirmation and settlement
• Volatility
• Pricing an option –
  • Binomial model
  • Black Scholes
  • Other approaches
• The importance of the yield curve

• Introduction to swaps
• Swap definitions
• Quality spread differential
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Swap valuations
• Model risk and the importance of pricing feeds
• Confirmation and settlement
• Counterparty credit risk
• Collateral and collateral management

• What is a derivative?
• Why are people worried about derivatives?
• Key concepts
• Arbitrage and the original purpose of derivatives – the mutual coincidence of wants
• Benefits and uses of derivatives
• Hedging and trading

• Banking book v trading book
• Market conventions
• Language of foreign exchange
• The process of trading foreign exchange
• Electronic and telephone trading
• Dealing room controls
• Currency terms

• Introduction to forward contracts
• Purpose of forward contracts
• Pricing a forward contract and the importance of Libor
• Documenting a forward contract
• Introduction to the ISDA
• Confirming and settling forward contacts

• Introduction to futures contracts
• The role of the futures exchange
• The nature of futures contracts
• The role in trading
• Pricing a futures contract
• Hedging with futures
• The importance of margin accounting
• Confirmation and settlement

• Fund management objectives
• Using a swap with an equity price index
• Example of cash flows of an equity swap
• Total return swaps and other credit derivatives

• Scenario modelling and derivatives
• Bankers Trust
• Barings
• Allfirst
• LTCM
• Enron

• The management of interest rate risk
• Introduction to collateralised instruments
• Counterparty credit risk and derivatives
• Legal risk and derivatives
• Value at risk and Exposure at default
• Loss given default and probability of default
• Stress testing and liquidity risk
• Scenario modelling
• The impact of international accounting standards, IAS 39 and IFRS 7
• Asset recognition and derecognition