Euromoney Audit Training

This is a rigorous 4-day course on fixed income instruments and analysis:

• Focus on understanding and evaluating bond prices and yields, measures of market value sensitivity like duration, convexity, and value-at-risk, and risk management instruments such as interest rate futures, swaps, and options. 
• Emphasize use as well as the limitations of these risk and rate of return statistics and hedging strategies. 
• Taught by an award-winning university professor having over 20 years of experience researching fixed income and interest rate risk management and teaching professionals. 

YOU WILL LEARN TO:

• Understand the factors shaping innovation and change in the fixed income markets
• Determine yield and price calculations on fixed income securities
• Analyze duration and convexity in measuring interest rate risk
• Examine exchange-traded futures contracts, forward rate agreements (FRAs) and interest rate swaps
• Reverse-engineer a structured note into a plain vanilla bond and embedded derivatives

WHO SHOULD ATTEND?

• Heads of Training
• Treasurers
• Finance Directors
• Analysts
• Corporate Finance Managers
• Back Office Staff
• Debt Managers
• Auditors & Risk Controllers
• Fund & Investment Managers

GUEST SPEAKER

 
James F. Adams, CFA, Ph.D
Managing Director, JPMorgan Chase

 

 

DAY 1: Introduction to Capital Market Structures

• Determining the Level of Bond Yields and Prices: The Demand and Supply of Funds
• Market Structures: Private Placements, Broker Markets, Dealer Markets, Intermediated Markets (Banks, Pensions, and Mutual Funds)
• Determinants of Liquidity: Market Size, Trading Volume, and the Time and Cost of Assessing Value
• Factors Shaping Innovation and Change in Capital Markets:
  - Technology, Securitization, Disintermediation, Globalization, Derivative Markets, Yield Curve and Currency Plays, Taxation and Regulation
• Financial Engineering Zero-Coupon Government Debt: The Classic Case of CATS, TIGRs, LIONs and Treasury STRIPS
• Financial Engineering Securitized Assets: The Classic Case of Collateralized Mortgage Obligations (CMOs)

Yield and Price Calculations on Fixed-Income Securities

• Par Value, Discount, and Premium Bonds
• Yield Statistics: Current Yield, Simple Yield, Yield to Maturity
• Assumptions and Limitations to Yield Statistics
• Bond Price and Yield Calculations
• Converting a Nominal Rate to an Effective Rate 
• General Periodicity Conversions
• Bond Pricing Theorems Assuming Parallel Yield Curve Shifts 
• Horizon Yields, Coupon Reinvestment Risk, Price Risk
• Constant-Yield Price Trajectory 
• Accrued Interest and Bond Pricing between Coupon Dates
• Generalized Bond Pricing for any Payment Frequency
• Yield Statistics on Bond Portfolios
• Credit Risk Analysis: Spreads over Benchmark Treasuries 
• Expected Loss Rates, Risk-Neutrality and Risk-Aversion

Workshop: Numerical Exercises on Bond

Prices and Yields

DAY 2: Yield Curve Analysis

• U.S. Treasury Bills, Notes, and Bonds: The Auction Process, Price and Yield Quotation
• Treasury STRIPS and Bond Arbitrage: Coupon Stripping and Bond Reconstitution
• Calculating Implied Spot (Zero-Coupon) Rates from Coupon Bonds
• Using the Implied Spot Curve: Discount Factors and Static Spreads
• Calculating Implied Forward Rates
• Using the Implied Forward Curve in Maturity Choice Decisions
• Classic Theories of the Term Structure of Interest Rates: Expectations Theory, Segmented Markets Theory, and Liquidity Preference Theory

Duration and Convexity Analysis

• Introduction to Duration
• Modified Duration, Dollar Duration, Basis-Point-Values
• Duration as the Link Between Changes in Market Value and Changes in the Yield to Maturity
• Calculating Duration as a Weighted Average Maturity
• Calculating Duration with a Closed-Form Formula
• Effective (Modified) Duration
• Annualizing the Duration Statistic
• Implied Duration of Floating-Rate Notes (FRNs)
• Relationship Between Duration and Maturity
• Calculating Duration Between Coupon Dates and on Portfolios
• Calculating and Using the Convexity Statistic 
• Potential Gains from Increasing Convexity on Bond Portfolios
• Limitations to Exploiting Convexity
• Balancing Coupon Reinvestment Risk and Price Risk
• Immunization as Replicating an Idealized Zero-Coupon Bond
• Importance of the Investment Horizon in Risk Analysis
• Using Duration as a Benchmark for Portfolio Performance

Value-at-Risk Analysis

• Applications of Value-at-Risk Measures: Position Limits, Resource Allocation, Capital Reserve Adequacy
• Calculating Value-at-Risk (VAR) on a Bond Portfolio
• Critical Assumptions: Confidence Intervals, Historical Volatility, Correlation

Workshop: Numerical Exercises on Yield Curve and Duration and Convexity Analysis

DAY 3: Exchange-Traded Futures Contracts

• Market Structure, Role of the Clearinghouse
• Daily Mark-to-Market Valuation and Settlement, Margin Accounts
• Long-Term Bond Futures: The U.S. Treasury Bond Contract
• Short-Term Interest Rate Futures: The Eurodollar Contract
• Assessing the Probability of FOMC Policy Actions from Fed Funds Futures

Forward Rate Agreements (FRAs)

• Market Structure, Role of Commercial Banks as Market Makers
• Quotation and Settlement Calculations
• Pricing and Hedging FRAs with Futures Contracts
• Pricing Long-Dated FRAs: The Convexity Adjustment

Applications of Interest Rate Derivatives in Management of Fixed Income Instruments

James F. Adams, Vice President North American Rate Markets, JPMorgan Chase

Interest Rate Swaps

• Contract Design and Market Structure
• Quotation and Settlement Calculations
• Plain Vanilla Swaps as a Series of Off-Market Forwards
• Credit Risk Analysis on Interest Rate Swaps
• A Swap as a Portfolio of Capital Market Instruments
• Mark-to-Market Value, the Duration of a Swap
• Pricing an Interest Rate Swap Using the Forward Curve and Zero-Coupon Discount Factors 
• Swap Applications: Arbitraging Credit Spread Differentials across Markets, Restructuring to Shorten or Lengthen the Average Duration of Assets or Liabilities
• Innovations: Varying Notional Principal Swaps, Off-Market Swaps, Forward-Start Swaps

Credit Derivatives

• Credit Default Swaps 
• Total Return Swaps 
• Applications in Fixed Income Management

Workshop: Numerical Exercises on Futures, Forward Rate Agreements, Interest Rate Swaps, and Credit

DAY 4: Overview of Options Contracts

• Vocabulary of Options
• Payoff Diagrams for Call and Put Options to the Buyer and Writer
• Factors that Determine the Value of an Option:the Key Role of Volatility in Option Valuation 
• Basic Option Strategies: Portfolio Insurance and Yield Enhancement

Options Embedded in Capital Market Instruments

• Callable and Putable Bonds
• Option-Adjusted Spreads (OAS)
• Interest Rate Cap and Floor Agreements
• Implications of Cap-Floor-Swap Parity
• Reverse Engineering Structured Notes

Workshop: Pricing Structured Notes Using Interest Rate and Credit Derivatives

• Donald Smith

  Don Smith is an Associate Professor of Finance and Economics at the School of Management, Boston University. He received his M.B.A. and Ph.D. degrees in Economic Analysis and Policy at the School of Business Administration, University of California at Berkeley.
  
  Don specializes in teaching Capital Markets and Risk Management courses. He has published widely in academic and trade journals, including the Journal of Finance, Journal of Money, Credit, and Banking, Journal of Fixed Income, Journal of Financial Engineering, Financial Management, Journal of Applied Corporate Finance, Euromoney Corporate Finance, Derivatives Strategy, Derivatives Quarterly, and the Journal of Derivatives. Don has co-authored chapters of the Handbook of Financial Engineering, Interest Rate Swaps, and Cross-Currency Swaps, and two monographs for the Association for Investment Management and Research, Interest Rate and Currency Swaps: ATutorial and Derivatives, Risk Management, and Financial Analysis Under SFAS 133.
  
  Don has been actively involved with executive education for over fifteen years, starting with Manufacturers Hanover Trust Company, where he was Senior Consultant to the Corporate Professional Development Department. He has developed and led training courses for many financial institutions, including Chemical Bank, Chase Manhattan Bank, Lehman Brothers, and the World Bank. He has been teaching Fixed Income and Advanced Interest Rate Risk Management courses with Euromoney for over ten years. While most of his executive training work is in New York, Don has taught courses many times in London and Hong Kong, as well as in Toronto, Mexico City, Caracas, Sao Paulo, Buenos Aires, Quito, Cairo, Bahrain, Tokyo, Seoul, Sydney, Singapore, and Kuala Lumpur.

  Courses run by this instructor

  • Advanced Interest Rate Risk Management - New York City

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.

Advanced Interest Rate Risk Management - New York City

10-13 Jul 2012 (New York, United States)

The course focuses on the ideas that lie behind the pricing and valuation of derivatives, and the practical and innovative applications of the products. The course combines lectures, class discussions, guest speakers, examples and case studies.

Instrumentos de Renta Fija - Miami

13-16 Nov 2012 (Miami, United States)

Este curso proveerá a los participantes los conocimientos necesarios para comprender una gran variedad de instrumentos del Mercado de Dinero y Mercados de Bonos entre los que se encontrarán T-Bills, papeles comerciales, STRIPS, ABS, FRN, CMO... En el curso se analizarán numerosos ejemplos de emisiones, formas de cotización, así como el cálculo de las diferentes medidas de rendimiento y de precios.

Bond School - New York City

10-13 Sep 2012 (New York, United States)

In recent years, international bond markets have grown significantly in size and complexity as new derivative products continue to be introduced. As such, the skills needed to evaluate financing and investment opportunities in fixed income markets have evolved, and many new techniques must be considered. Synthetic (derivative) fixed income markets often dictate pricing in cash markets, a new phenomenon requiring a vastly different set of skills needed to assess opportunities and provide timely solutions.

Masters in Financial Markets - New York City

23-27 Apr 2012 (New York, United States)

 

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