Course Overview
'Inflation-Linked Securities and Derivatives' provides delegates with a comprehensive evaluation of inflation-linked products, key concepts, pricing and valuation models, and applications of inflation-linked instruments in asset-liability management, hedging and trading. In addition, delegates will learn how inflation linked derivatives are used in structured product solutions.
Summary of course content
- Analysis of inflation-linked bond markets
- Market conventions
- Building inflation curves
- Deriving forward inflation expectations
- Inflation-linked swap and option markets
- Inflation linked structured notes
- ALM and trading applications
- Modelling inflation-linked securities and swaps
Methodology
As with all Euromoney Training courses, this programme makes use of case-studies and exercises to ensure that you leave the course, ready to apply your new knowledge.
Computer-based exercise
All delegates should bring their laptops to facilitate in-class studies and exercises.
Who should attend this training course?
- Derivative and fixed-income sales and trading professionals
- Structured product/ Financial engineers
- Risk managers
- Fixed income analysts
- Product controllers
- Asset managers
Supporting publications
DAY ONE
Overview – inflation-linked markets
- Nominal and real interest rates; the Fisher equation
- Inflation risk premia
- Fundamental drivers of real yields
- Inflation indices
- Creation of inflation indices
- Publication of CPI data
- Seasonality
- Issuance and investment in inflation-linked securities
- Investment rationale
- Real returns
- Inflation hedging; ALM
- Issuance rationale
- Fiscal credentials
- Social benefits
- ALM
- Corporate and government issuance
- Inflation-linked bond markets
- Government inflation-linked bonds
- UK inflation-linked gilt market
- US TIPS, iStrips
- Euro-zone
- Other inflation-linked bond markets
- Non-government inflation-linked bonds
- Inflation-linked structured notes (incl. hybrids)
- Inflation derivatives
- Inflation swaps
- Inflation and real rate options
Government inflation-linked bond markets
- Mechanics of inflation-linked bonds
- Inflation-linked bond conventions
- Inflation indices
- Inflation index time lag
- Pricing in real space vs. nominal space
- Accrued interest calculation
- Carry considerations
- Deflation protection; 0% floors
- UK inflation-linked gilt conventions
- Market conventions
- Yield calculations
- Inflation assumptions
- US TIPS model
- Determination of real yields - calculation methodology
- France
- OATi and OAT€i issuance
- Yield calculations
Index linked bond concepts
- Breakeven Inflation (BEI) and carry
- Variations in carry behaviour (UK vs.US, Eurozone)
- Seasonality
- Euro vs.US seasonality
- Seasonality adjustments
- Inflation-linked bond risk analysis
- Inflation-linked bond and nominal bond risks: duration and convexity differences
Inflation-linked structured notes
- Structural differences to inflation-linked bonds
- Year-on-year inflation-linked notes
- Inflation hybrid structured notes
Linker trading strategies
- Breakeven and carry
- Market variations (UK, US, Canada)
- Trade types and examples
- Cross market BEI
- Curve trades (barbells)
- Trading ratios; Beta
DAY TWO
Inflation-linked derivatives
- Inflation swaps
- Zero coupon inflation swaps
- Year-on-year inflation swaps
- Floored swaps
- LPI
- Inflation caps and floors
- TIPS options
- Inflation swaptions
- Mechanics; market conventions; price quotation
- Documentation; ISDA® definitions
- Inflation futures
Pricing and valuation of inflation-linked derivatives
- Bootstrapping a zero swap breakeven (inflation) curve
- Determinants of swap breakeven inflation
- Implying the inflation forward curve
- Theoretical breakeven inflation (bond market implied)
- Basis - swap implied vs. bond BEI
- Seasonality and zero swap breakevens
- Adjusting for seasonality patterns
Computer exercise: building a forward inflation (BEI) curve
Inflation derivatives applications
- Asset liability management
- Liability driven investment
- Asset swaps
- Real rate vs. LIBOR/Euribor
- Pricing par and market value asset swap structures
- Pricing distortions and transaction risks
- Constructing synthetic index linked securities
Computer exercise: asset swapping an index linked security; creating a synthetic linker from a corporate bond
- Trading applications
- Exploiting the swap - bond BEI basis
- Trading breakeven inflation expectations
- Forward breakevens
- Carry and other considerations
- Inflation linked structured products
- Modelling inflation-linked structures
- Embedded inflation derivatives
- Pricing considerations for inflation hybrids
Euromoney Training and this course are neitherendorsed by nor affiliated with ISDA®
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Graham Dudlyke
Graham Dudlyke is a highly experienced derivatives consultant who has held senior positions in a number of major financial institutions in London and New York. As Vice President of the Arbitrage Trading Group at Chemical Bank, Graham was responsible for management and marketing of interest rate option trading, managing a portfolio of interest rate caps, floors and swap options. As an Associate Director of Mitsubishi Finance, London, he gained considerable experience in trading portfolios of swaps and options, and in risk management and financial engineering, including structuring new issues of debt and creating structured assets.
As Manager of SE Banken's Global Derivatives Trading Group, he held overall responsibility for swaps, options and fixed income portfolio trading and risk management, new product development, and corporate and institutional marketing of structured debt products. Graham lectures internationally on all aspects of derivatives and fixed income and is highly respected for his practical market approach to product structuring and applications. Graham holds an MBA from Imperial College, London and an MA in Chemistry from Oxford University.
Courses run by this instructor
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