Course dates
Course overview
This five-day derivatives training course has been designed to provide you with a thorough understanding of the derivatives market place for both OTC and exchange-traded instruments, and, in particular, how banks use derivatives on a day-to-day basis to manage both their own exposures and to provide solutions to their customers.
On the first three days of the course you will gain a comprehensive general knowledge and understanding of the major classes of derivatives, distinguishing between linear and non-linear derivatives.
The final two days of the course explains, by way of specific examples, how banks use derivatives for their own and customer benefit. The first part looks at specific solutions for customers and focuses on the role of swaps in the primary issuance business, and managing customer FX exposures; whilst the second looks at financial engineering, and more specifically, at how derivatives can be used to reduce funding costs and/or as a means of the bank earning fees without taking a proprietary position, whilst at the same time providing investors with instruments that meet their risk/reward requirements.
Summary of course content
- What is a derivative?
- How and why are they used in practice?
- How do exchange-traded derivatives and OTC derivatives differ?
- Clearing procedures for exchange-traded derivatives
- Understanding the principal money market derivatives and how they are used to manage interest rate risk
- Swaps and how banks and other institutions use them
- Prima on options and their application in the management of FX risk
- How derivatives are embedded in common structures to provide investors with attractive risk/reward profiles
Methodology
The course uses traditional techniques, lectures, worked examples and real case studies, showing in detail how the products are used and why. The course has been designed to show the products in a highly practical way, without over-complication, with clear illustrations of each so that participants may easily understand them and the role the bank plays.
Who should attend this training course?
- Derivatives traders and salespersons
- Product control and middle office staff
- Corporate treasury staff
- Financial controllers
- Risk managers
- Fund managers
- Private bankers and investment advisors
- Derivatives system developers
- Compliance, legal, IT and other back office staff
Supporting publication
DAY ONE: Introduction to derivatives and derivative types
Introduction to derivatives
- What is a derivative?
- Why is there a market for derivatives?
- Attributes of derivatives
- Practical uses of derivatives
- Leveraged trading
- Risk management applications
- Creating synthetic positions
- Advantages of derivative instruments over cash instruments
- OTC vs. exchange-traded products
- Calculating the P & L on a futures contract
- Understanding the Clearing House guarantee and margining system for exchange traded instruments
Case study: delegates will complete a margining return over a period of time for a small portfolio.
Linear derivatives: money market derivatives
- Concept of a forward contract
- Forward/forward interest rates
- Forward Rate Agreements (FRA's)
- Locking-in a forward interest rate
- Exchange traded version: Short-Term Interest Rate (STIR) futures contracts
Case study: delegates will complete a number of exercises based on FRA's and STIR's.
Multi-period linear interest rate derivatives: swaps
- The Interest Rate Swap (IRS) market
- Types of swap
- Interest rate swaps
- Currency swaps
- Basis swaps
- Market structure
- Inter-bank vs. customer market
- Broker quotes in the inter-bank market
- Why the market exists: reducing funding costs by using swaps
- End user applications of swaps
Case study: delegates will derive the market swap bid and offer rates consistent with the actual and target borrow rates of two institutions.
DAY TWO: A valuation framework for forwards, futures and swaps
A framework for marking-to-market OTC derivative positions (part I)
- Approaches to forward valuation
- Arbitrage-free pricing
- Cash flow pricing
- Deriving the forward FX rate using market rates
- Marking-to-market a forward FX contract
Case study: using the bootstrapping approach, delegates will derive the inter-bank discount function.
A framework for marking-to-market OTC derivative positions (part II)
- Building the discount function
- What instruments to use
- "Bootstrapping" the swaps curve
- Marking-to-market an IRS
Case study: using the discount function derived earlier, delegates will mark-to-market a number of swap positions.
DAY THREE: Introduction to options
An options primer
- What is an option?
- Option terminology
- Exercise types
- Option "moneyness"
- Intrinsic vs. time value
- Understanding the payoff profiles
Introduction to option pricing and risk measures
- The importance of correct valuation
- Intrinsic vs. time value
- What drives the price of the option: understanding the model inputs
- Approaches to option valuation: hedge approach vs. probabilistic approach
- Breaking-down the Black Scholes option pricing model
- Option risk measures: the "Greeks"
- Problem in market making
Case study: delegates will use the option Greeks to estimate the new price following a change in market variables.
DAY FOUR: Applications of derivatives
Delivering customer solutions: providing tailored hedge programmes for customers' FX exposures
- The problem with "forward only" cover
- Using currency options to retain the up-side
- Creating zero premium products
- Introducing more innovative solutions: using exotic options
Case study: delegates will propose a suitable hedging strategy for a corporate with FX exposures.
Financial engineering with derivatives
- Primary motivations for structuring
- Securing cheaper funding
- Providing attractive risk / reward profiles for investors
- Earning fee income
- The structuring process
Targeting the retail market: capital guaranteed notes and high income products
- Understanding the process and distribution channel
- Constructing a capital guaranteed note
- Introducing a cap and other common variations
- Commodity-linked notes
- Credit-linked notes
- High income products
- Selling puts to increase income
- The listed certificate market
Case study: delegates will critically analyse a recent
World Bank equity-linked note from the perspective of issuer and investor.
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Before becoming a freelance training consultant, the Course Director was the Strategic Development Manager at the London International Financial Futures Exchange (LIFFE), where he was responsible for the research and definition of new specialist swap and risk transfer contracts. Prior to this, he was Head of Interest Rate Product Development with responsibility for the maintenance of the existing product range and the development of new products.
He began his career with Ernst & Young and Grant Thornton as a tax specialist, before moving into corporate treasury management at Consignia where he was project leader for a treasury and risk management group. In this role he developed risk management protocols and procedures for the use of derivative products. He was responsible for recommending the optimal combination of product types and features for a wide range of situations.
Following the completion of a quantitative finance masters degree, he became senior lecturer in Corporate Finance and Taxation at the University of Greenwich. He is a visiting lecturer to Cass Business School, lecturing on their Executive MBA programme. He is a panel member for the Securities Institute, and is a Member of the Association of Corporate Treasurers and associate of the Institute of Taxation.
Courses run by this instructor
4-5 Star Hotel in Hong Kong, Hong Kong,
All of our courses are held in 4 – 5 star hotels, chosen for their location, facilities and level of service. You can be assured of a comfortable, convenient learning environment throughout the duration of the course.
Due to the variation in delegate numbers, we will send confirmation of the venue to you approximately 2 weeks before the start of the course. 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.
4-5 Star Hotel in Singapore, Singapore,
All of our courses are held in 4 – 5 star hotels, chosen for their location, facilities and level of service. You can be assured of a comfortable, convenient learning environment throughout the duration of the course.
Due to the variation in delegate numbers, we will send confirmation of the venue to you approximately 2 weeks before the start of the course. 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.
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