Course dates
Course overview
'Bond School' provides systematic, integrated training on all bond and bond related products available in the market today. The course is designed to equip you with the most professional, intensive and active market knowledge in this field.
If you are looking to...
- rapidly acquire the foundation knowledge necessary to price and value bonds and fixed income derivate products such as swaps, futures, options, structured notes
- evaluate the risk and profitable investment opportunities associated fixed income holdings and portfolios
- position your bond/market skills to take advantage of opportunities
then this is the course for you!
Summary of course content
- Bond market conventions and fixed income mathematics
- Term structure analysis and the zero coupon yield curve
- Bond pricing methodologies
- Duration and convexity measures
- Caps, floors and collars
- Financial engineering: structured products
- VaR of bond portfolios
- Bond trading simulation exercises
Methodology
The course includes sessions in which small groups of delegates participate in case studies, exercises and simulations to apply new techniques and concepts. All lecture material is reinforced with practical computer applications using Excel spreadsheets. Delegates should bring their own laptops and financial calculators.
Who should attend this training course?
- All fixed income functions
- Corporate finance/corporate treasury
- Capital markets
- Audit/product control/risk management/ALM
- Investment management
- Securitisation/syndication/structured finance
- Money markets/Repo
- Systems programming
- Government/agency funding and investment
- Regulation or compliance documentation
Supporting publications:
Day 1: Review of the basics
Key features and conventions
- Bond specification
- Bond types
- Fixed coupon bonds
- Floating rate bonds
- Discount securities
- Discounted bills and notes
- Zero coupon bonds
- Convertible notes
- Option embedded (callable, puttable bonds)
- Strips
- Hybrid bonds
- Structured notes
Bond market conventions
- Yield quotations
- Price quotations
Review of fixed income mathematics
- Present value, future value and rates of interest
- Simple interest
- Compound interest
- Discount factors
- Capital sums
- Valuation of annuities
Fixed rate bonds
- Pricing fixed coupon bonds
- Premium and discount bond
- Price to yield
- Building a bond price calculator
- Settlement price between coupon dates
- 3 step pricing
- Actual over actual pricing example
- Fractional period calculation
- Price vs. yield quotations
- American (and other) price markets
- Implied yield
Computer-based exercises: interest rate conversions, calculating clean and dirty prices, holding period yield calculation; building a bond pricing spreadsheet; computing implied yields
Floating rate bonds
- Pricing floating rate bonds
- Treatment of floating rate margins
- Fixed vs. floating rate bonds
Zero coupon pricing methodology
- Representing bonds as portfolios of zero coupon bonds
- Additive valuation of cash flows using zero coupon bonds
- Determining price and yield of coupon bonds using zero coupon yields
Zero coupon yield curve construction
- Direct bootstrapping
- Pricing new bond issues
Computer-based exercises: delegates build a spreadsheet that derives zero coupon rates from market yields on coupon bonds
Day 2: Bond risk management
Bond yield curves
- Term structure of interest rates
- Term structure dynamics
- Properties of yield curves
- Term structure theories
- Unbiased expectations
- Liquidity premium
- Segmentation and preferred habitat theories
- Monetary policy, interest rates and central banks
- Inflation and yields
- Functions of the yield curve
- Returns analysis
- Interest rate expectations
- Pricing and valuation of fixed income securities
- Relative valuation - spread analysis
Computer-based exercise: computing historical and implied volatility using yield and bond price data Alternative measures of return
- Current yield
- Yield to maturity
- Assumptions
- Capital risk
- Reinvestment risk
- Total return
- Scenario analysis
- Comparison of bonds using total return analysis
Bond price sensitivity
- Price risk
- Duration
- Macaulay's duration
- Measurement of price sensitivity
- Modified duration
- Duration properties
- Dollar sensitivity
- Basis point value
Managing portfolio risk
- Portfolio risk indicators
- Duration
- Basis point value (DVOI)
Structured note portfolio risk simulation: delegates will be asked to manage a structured note portfolio, to maximise return, in the face of realistic yield curve volatility
Convexity
- Convexity defined
- Source of convexity
- Convexity is good?
- Convexity and volatility
- Zero duration, positively convex portfolios
Bond portfolio management models
- Bond portfolio characteristics
- Price, value
- Duration, convexity, BPV
- Constructing targeted portfolios
- Minimising the size of the portfolio
- Imposing portfolio restrictions
Computer-based exercises: delegates construct a spreadsheet that records bond holdings and displays key portfolio statistics such as value, BPV, duration and convexity
Holding period yield immunisation
- A coupon bond¡¦s zero coupon, equivalent
- Using duration to reduce holding period yield volatility
Immunisation case study: delegates will examine the efficacy of alternative immunisation strategies designed to immunise holding period yields against volatile German interest rates
Day 3: Forward interest rates options and swaps
Bond trading and portfolio management
- Interest rate expectations
- Relative value trading: curve plays
- Flattering/steepening trades
- Butterfly trades
- Economic and technical analysis of yield curve trades
- Bond portfolio management strategies
- Passive management
- Active management techniques
Foreign denominated bonds
- The foreign bond market
- FX market operations and conventions
- Settlement
- Spot, forward and FX option contracts
- Commodity currency/terms currency conventions
- FX vs. yield risk
Managing FX and yield curve risk simulation: delegates are required to balance their holding of a variety of domestic and overseas bonds to maximise portfolio return. FX forward and option contracts are employed in this historically based simulation
Option embedded bonds
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Characteristics of callable and puttable bonds
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Valuation of callable and puttable bonds
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Yield to call (put) vs. yield to maturity
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Price sensitivity characteristics of callable and puttable bonds
Computer-based exercises: delegates compare and contrast the properties of callable and puttable bonds using spreadsheet option macros
Spot-forward interest rate relationship
Computer-based exercises: delegates use bill futures strip prices to construct a zero coupon yield curve
Interest rate swaps
- Swap market background
- Rationale for swap transactions
- Basic features
- Indicative cash flows
- Using swaps to hedge an exposure to interest-rate risk
- Computing the fair swap fixed rate
- The swap fixed rate as the equaliser of value
- A swap as two bond transactions
- Value of an open swap
- Credit risk
- Credit risk and swap pricing
- Swap variations
- Accreting swap, amortising swap, power swap
- Off market swap, forward swap
- Swaption, set in arrears swap, yield curve swaps
- CMT swaps
Day 4: Derivatives and financial engineering
Fixed interest futures markets
- Forward yields and futures prices
- Speculating using interest rate futures
- Hedging using interest rate futures
- Perfect hedge
- Imperfect hedges (basis risk)
- BPV values
- Constant BPV
- Variable BPV
- BPV hedging
BVP hedging case study: delegates examine the effectiveness of alternative strategies to hedge a bond portfolio with interest rate futures contracts
Swap rate case study: using current futures market data, delegates compute a fair swap rate and compare their answer against rates offered in the market VaR for bond portfolios
- Covariance approach
- Historical simulation
- Monte Carlo simulation
Interest rate options
- Rates vs. prices
- Bond options
- Eurodollar futures options
Caps, floors and collars
- Option value inequalities
- Pricing floors and floorlets
- Collars
Computer exercises: delegates build a spreadsheet to price caps and floors using Black's futures model
Using caps and swaps to manage interest rate risk simulation: this simulation, using historical data requires delegates to switch in and out of capped and swapped positions to minimise interest paid
Financial engineering - analysis of structured products
- Structured notes
- Reverse engineering: decomposing a structured product
- Relationship to the par rate
- Classic inverse floater
- Gingering up the coupon
- The rationale for structured products
- The building blocks; bonds, swaps and options
Structured note simulation exercises
InterContinental Grand Stanford Hotel, Hong Kong, Hong Kong
This programme takes place on a non-residential basis at the InterContinental Grand Stanford Hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.
Sydney Hotel, Sydney, NSW, Australia
This programme takes place on a non-residential basis at a central Sydney hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.
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Ben Hunt
Ben Hunt is a leading authority on fixed income products, risk management and derivatives. His previous role was of Head, Graduate School of Business and MBA Director at the University of Technology, Sydney.
Ben has degrees from Adelaide University, including a Master’s thesis on Price Formation in the Sydney Futures Exchange, and a Doctorate from the Australian National University. His Ph.D. focused on an examination of the Determinants of Australian Interest Rates and Exchange Rate.
He is co-author of the text book, Financial Instruments and Markets, published by Thomas Nelson. Ben has concentrated his research efforts on applied financial problems. His latest published work explores the predictability of implied volatility and its application to option trading systems. His current research effort is directed at modelling the term structure of interest rates.
In addition to his academic work, he consults extensively to the private sector. He developed a Bond Futures system for Bain and Co, a gold trading system for UBS, an FX system for Shearson Lehman and an FRA system for Fulton Prebon. He was jointly responsible for the PROTANGO BOPS equity option systems distributed by Reuters Australia and installed in many Australian broking and fund management offices such as HSBC, Salomon Smith Barney, Prudential Bache and Natwest Markets. The Reuters technical charting package BeaCh is his latest commercial software development project.
Ben is widely regarded for his ability to translate theory into practice and for his communication skills. In addition to his UTS duties, Ben has taught in the graduate programmes of Sydney, N.S.W. and Macquarie Universities.
Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.
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Course dates