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 swaps, caps, collars, floors, and swaptions.
• Emphasize use as well as the limitations of these risk and rate of return statistics and hedging strategies in a bond portfolio context and not just on individual securities.
• Covers interest rate swap valuation using OIS discount factors in addition to traditional LIBOR discounting.
  Taught by an award-winning university professor having over 25 years of experience researching fixed income and interest rate risk management and training finance professionals.
• Delegates receive Bond Math: The Theory Behind the Formulas (Wiley Finance, 2011).

GUEST SPEAKER

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

 

 

Day 1

Introduction to Fixed-Income Securities

· Determining the Level of Bond Yields and Prices: The Demand and Supply of Funds

· Market Structures: Private Placements, Broker/Dealer Markets, Intermediated Markets

· Determinants of Liquidity

· Sources of Dealer Profitability

· Financial Intermediation, Transactions Costs, and Asymmetric Information

· Securities Flow Diagram

· Financial Engineering Zero-Coupon Government Debt: The Classic Case of CATS, TIGRs, LIONs and Treasury STRIPS

Money Market Analysis

· Money Market Instruments

· Discount Rates vs. Add-On Rates

· Pricing Formulas and Conversions

· Periodicity Conversions

In-Class Spreadsheet Exercises

Bond Prices and Yields

· Calculating Bond Prices Using Zero-Coupon Rates

· Assumptions and Limitations to Yield to Maturity

· Horizon Yields, Coupon Reinvestment Risk, Price Risk

· Constant-Yield Price Trajectory and Bond Taxation

· Accrued Interest and Bond Pricing between Coupon Dates

· Calculating the Implied Probability of Default on Corporate Bonds

· Yield Statistics on Bond Portfolios

· Bloomberg Yield Analysis (YA) Page

In-Class Spreadsheet Exercises

Day 2

Treasury Yield Curve Analysis

· U.S. Treasury Bills, Notes, and Bonds: The Auction Process, Price and Yield Quotation

· Interpreting Auction Results

· U.S. Treasury Yields on Coupon Bonds, TIPS, and STRIPS

· Repo and Reverse Repos

· Treasury STRIPS and Bond Arbitrage: Coupon Stripping and Bond Reconstitution

· Calculating and Using Implied Spot (Zero-Coupon) Rates from Coupon Bonds

· Calculating and Using Implied Forward Bond Rates

· Money Market Implied Forward Rates

· Classic Theories of the Term Structure of Interest Rates: Expectations Theory, Segmented Markets Theory, and Liquidity Preference Theory

In-Class Spreadsheet Exercises

Duration and Convexity Analysis

· Bond Pricing Theorems—Coupon, Maturity, Convexity Effects

· Taxonomy of Duration Statistics

· Yield Duration—Macaulay and Modified Duration

· Calculating Duration as a Weighted Average Time to Receipt of Cash Flow

· Calculating Duration with a Closed-Form Formula

· Relationship Between Duration and Maturity

· Duration-Based Weights for Average Yield

· Calculating and Using the Yield Convexity Statistic

· Bloomberg Yield Analysis (YA) Page

Value-at-Risk Analysis

· Calculating Value-at-Risk (VaR) on a Bond Portfolio Using Yield Volatilities

· Calculating VaR on a Bond Portfolio Using Price Volatilities

· Using VaR in Portfolio Management

· Expected Shortfall

In-Class Spreadsheet Exercises

Day 3

Callables, Putables, and Floaters

· Simple Binomial Model for Valuing Embedded Options

· Valuing Callable and Putable Bonds

· Curve Duration and Convexity on Callables and Putables

· Option-Adjusted Spreads (OAS) and Yields (OAY)

· Bloomberg OAS1 Page

· Curve Duration and Convexity on Non-Callable Bonds

· Duration of a Floating-Rate Note

· Bloomberg YAF Page

In-Class Spreadsheet Exercises

Interest Rate Swaps

· Quotation and Settlement Calculations

· A Swap as a Combination of a Fixed-Rate Bond and a Floating-Rate Note

· Calculating the Mark-to-Market Value of a Swap

· The Classic Credit Quality Spread Arbitrage Story

· Pricing a Swap Using the Implied Spot and Forward Curves

· Traditional Swap Valuation Using LIBOR Discounting

· Interest Rate Swap Valuation Using a Binomial Tree

· Implications for Swap Valuation from OIS Discounting

· Bootstrapping the Implied Forward Swap Curve

· Varying Notional Principal Swaps, Forward-Start Swaps, Off-Market Swaps

In-Class Spreadsheet Exercises

Day 4

Fixed-Income Portfolio Strategies

· Maturity Extensions and Riding the Yield Curve

· Break-Even Forward Yields

· Aggressive Portfolio Management Using Average Duration and Convexity

· Bull and Bear Flatteners, Bull and Bear Steepeners

· Positive and Negative Butterfly Shifts

· Swap Overlays to Modify Portfolio Duration

· Passive Portfolio Management and Immunization

· Structural Risk to Immunization

· Relationship between Yield, Macaulay Duration, Convexity, and Dispersion

· Implementation Issues for an Immunization Strategy

In-Class Spreadsheet Exercises

Interest Rate Caps, Collars, and Floors

· Quotation and Settlement Calculations

· Cap-Floor-Swap Parity

· Amortization of Multi-Year Cap Premiums

· Debt Liability Management Using Swaps, Caps, and Collars

· Cap and Floor Valuation Using Binomial Trees

· Floating-Rate Notes with Embedded Caps and Floors

· Reverse Engineering Structured Notes

Entry Options on Swaps (Swaptions)

· Payer Swaptions and Receiver Swaptions

· Using Forward-Start Swaps and Swaptions to Hedge Pre-Issuance Interest Rate Risk

· A Pre-Issuance Hedge Example Using Binomial Trees

In-Class Spreadsheet Exercises

• 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.

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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