During this 4-day, intensive swaps training course you will benefit from in-depth discussions and presentations on how to:
- Construct and price off a futures strip
- Blend information from different markets together efficiently
- Price and hedge a wide range of non-generic swap structures
- Transfer credit risk through the CDS market
- Value foreign assets correctly
- Swap complex structured products using numerical models and Monte-Carlo simulations
- Decompose structures with embedded options into their basic components
- Apply modern risk management to swap portfolios
Who Should Attend
- Experienced members of swaps desks and other structuring teams
- Senior risk managers and risk analysts
- Corporate treasury and other end-users to understand how banks are pricing and hedging swap structures
- Analysts and researchers
- Fixed income porfolio managers
- FX managers
- FX sales
Teaching Methodology
This course is very interactive,combining formal lectures with practical sessions, discussions and a wide range of computer-based exercises which can be taken away after the course. This will reinforce your learning and ensure that you apply these new skills as soon as you return to your institution.
Prerequisite
It is assumed that you will have a basic understanding of the swaps market, including:
- Operations of the cash, FRA, futures and swap markets
- Use of discount factors to fair price swaps
- Basic option pricing
- General interest rate risk management
Course Background
By the end of 2008, the size of the global swap market was nearly US$400 trillion, and had been growing at a rate of over 20% pa during the past 30 years. Why? Because organisations have been increasingly using it to manage their exposures to the financial markets, such as interest and FX rates, equity and commodity, inflation, volatility, credit, etc. During this time, the swap market has evolved to provide a wide range of innovative structures designed to meet the precise requirements of end-users. Dr. Richard Flavell and Euromoney Training have offered this course to market participants for over ten years. It has been continually updated to include the latest practical and theoretical developments in the structuring, pricing and hedging of swaps and related transactions.
Day 1
Brief revision
Pricing off a futures strip
- Building a discount curve
- Adjusting for the convexity bias
- Fair pricing of a short-term swap
- Demonstrating hedge effectiveness
Computer-based exercise: pricing a swap
Relationship between generic swaps and the bond market
- Swaps as the arbitrage between cash and bond markets
- Analysis of the swap spread
- Use of the repo market, and cost of carry model
- Pricing and hedging of spreadlock swaps
Derivation of zero coupon discount factors and forward rates
- Brief reminder: bootstrapping and estimation of forward rates
- When does bootstrapping breakdown?
- Practical issues: interpolation, blending and smoothing
- What represents a “good” curve: an alternative approach
- Building a curve from a sparse market
- Demonstrating blending and smoothing algorithms
Computer-based exercise: imply the discount factors from a swap curve
Pricing and valuing simple non-generic IR swaps
- Three alternative methods for the pricing of par non-generic swaps
- Demonstrating the methods to:
- - Forward starting swap
- - Amortising swap
Computer-based exercise: price two non-generic swaps
- Two alternative methods for the valuation of swaps
- Demonstrating the methods
Computer-based exercise: valuation of two non-generic swaps
Day 2
Swap applications
Asset packaging
- Creating different packages: premium, par, discount
- Creating a par maturity package
- What’s really going on?
- Arbitrage between bond and swap valuation methods: the credit implications
- - Subsidisation effects
- - Forward valuing: how to include your cost of funding
- Practical details
Computer-based exercise: create some asset packages
Credit default swaps and other structures
- Total return swaps and the links with asset packaging
- Complete and contractual transfer of credit risk
- Single-name CDSs
- - Documentation of a CDS: the current issues?
- Pricing and hedging of CDSs using alternative approaches
- Pricing of risky cashflows
- - Derivation of forward default curves
- - Replication using FRNs
- Portfolio CDSs and their use in CDO structures
Computer-based exercise: price a CDS
Mismatch swaps
- What are the assumptions underlying the normal floating conventions
- Violating the conventions:
- - In-arrears, average-rate and compound swaps
- - Overnight Indexed Swaps (OISs) such as EONIAs and RODS
- Turbo swaps
- Yield curve swaps such as constant maturity swaps
Computer-based exercise: price a CMS
- The convexity effect in mismatch swaps
- Demonstration through simulation
- Theoretically pricing the convexity effect in CMS
Day 3
More complex swaps and other applications
More complex swaps: structured securities
- A brief overview of the structured securities market
An outline of advanced modelling methodologies
Brief reminder of the analytic IR option pricing models
- - Black models for caps/floors and swaptions
- - Aside: some exotic structures such as chooser and periodic caps
- - Pricing extendible and retractible swaps
Numerical modelling: building an arbitrage-free forward interest rate tree
Simulation: building a BGM simulator
- - Calibrating the simulator
Computer-based exercise: swapping a complex security
Swapping structured securities
- Classifying structures into the modelling methodology
Demonstration: swapping an analytic structure such as a range accrual
Demonstration: swapping a forward structure such as a callable bond
Demonstration: swapping a backward structure such as a TARN
- Pricing an index-amortising swap
Demonstration: swapping a backward-forward structure such as a callable sticky floater
Cross-currency swaps
- CC basis swaps: a building block for CC swaps
- - CCBSs and off-balance loans
- - Outline of pricing CCBSs
- How to value a foreign asset correctly
- - Incorporating the CCBS curve into the bootstrapping process
- Swapping a bond issue: building a tailored CCS
- Creating a foreign asset package
Computer-based exercise: swapping a foreign bond issue into domestic floating rate
- Pricing of diff and quanto diff swaps with convexity effects
- Modelling of power reverse dual structures
Day 4
Adjusting the pricing of swaps for counterparty credit risk (CCR)
Measuring the size of exposure on the counterparty
- Building a probability envelope
- Estimating Peak Exposures
- Aside: what does Basel II say?
Incorporating a Credit Support Agreement
- How does this change the pricing?
Adjusting the price for CCR
- Building a default model for a single swap
- Calculating the CCR adjustment
- Extending the model to include migration risk (Credit Valuation Adjustment)
- A brief outline: modelling a portfolio of swaps
Risk management of swap portfolios
A fundamental knowledge of IR risk management is assumed
- How do IR curves behave?
- Risk management reporting:
- - Construction of a delta and gamma reports for different curve movements
- - The concept of an equivalence
- Hedging swap portfolios
- - The use of Taylor’s theorem
- - Delta hedging
- - Assessing hedge effectiveness using shocks and simulation
- - Construction of a theta report
- - Running a portfolio: funding and other issues
- - Control frameworks
Computer-based exercise: creating an effective hedge for a portfolio
- An outline of Value-at-Risk
- - Measuring VaR for a single risk factor
- - Extending this to two, and multiple, risk factors
- - Measuring VaR for a swap portfolio
Computer-based exercise: building a minimum-VaR hedge for a portfolio
Summary of course
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Dr. Richard Flavell
Richard Flavell
Dr Richard Flavell is a consultant in the financial services industry. Until recently, he was Director of Financial Engineering at Lombard Risk Systems, one of the leading providers of derivative trading systems around the world. In this role he led a team responsible for the mathematical development of Lombard’s derivative trading and risk management systems. At the same time, he also undertook extensive client/product training and consultancy projects.
Prior to his role at Lombard Risk, Dr Flavell was Head of Financial Engineering at ANZ Merchant Bank in London, and was Reader in Finance at The Management School, Imperial College, which is part of the University of London. He has worked with many banks and financial institutions around the world, advising them on their derivative and risk management activities. Dr Flavell has an international reputation for his expertise in swaps, other derivatives and risk management.
Dr Flavell has also published widely in both academic and professional literature, his most recent book on Swaps and other Derivatives was published in December 2009, and he is currently writing a book on bank risk management. His approach to training is structured and practical. He has extensive experience and success in teaching both recent entrants to the derivatives markets and risk management, as well as highly experienced technical experts and market participants.
Courses run by this instructor
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.
13-14 Dec 2012 (Paris, France)
A 2-day, intermediate-level training course designed to familiarise delegates with the full range of inflation-linked products, using real case studies and PC-based exercises.
18-20 Jun 2012 (Paris, France)
A unique 3-day programme with computer-based exercises on pricing of credit default swaps and the modelling of credit portfolios.
All delegates will receive comprehensive course documentation for use during and after the course, plus copies of the computer-based simulations, enabling them to return to their organisations with an extensive and valuable source of information for future reference.
9-13 Jul 2012 (Prague, Czech Republic)
This 5-day, comprehensive training workshop is designed to help a wide range of delegates to increase their skills in the various applications of derivatives products as well as their pricing, risk management, and structuring.
The workshop focuses on a complete product range in the equity, foreign exchange, commodities, interest rate, and credit markets.
29-31 Aug 2012 (Paris, France)
A practical and highly interactive 3-day training course, incorporating numerous case studies, that provides delegates with a thorough understanding of the syndicated loan market, its process and potential
21-24 Aug 2012 (Stockholm, Sweden)
This four day intensive programme provides delegates with a comprehensive exposure to a range of advanced swap topics, including pricing and valuation in the presence of funding and liquidity risk, 2nd generation swaps and interest rate option derivatives.
12-14 Nov 2012 (Amsterdam, Netherlands)
A 3-day asset securitisation course taught by an experienced securitisation and corporate finance specialist.
16-25 Jul 2012 (Prague, Czech Republic)
An 8-day financial training course based on case studies and model building.
The course is designed to provide an in-depth overview of the main areas in finance, including recent controversies and regulatory issues.
The course delivers exposure to all the main corporate finance disciplines including the main company funding areas such as debt and equity issuance, valuation, M&A, leveraged buy-outs and restructuring as well as the associated model-building.
12-16 Nov 2012 (Moscow, Russia)
This 5-day, comprehensive training workshop is designed to help a wide range of delegates to increase their skills in the various applications of derivatives products as well as their pricing, risk management, and structuring.
21-23 Nov 2012 (Paris, France)
This 3-day course is designed to give practitioners a good grounding on the fundamentals of derivatives and other financial instruments, how they are valued and more importantly, how they should appear on the financial statements. Hedge accounting, including macro and micro strategies will be discussed in detail. Featuring practical impact of IAS 39 and FASB 133 on derivatives transactions.
13-16 Nov 2012 (Amsterdam, Netherlands)
A 4-day, practical, computer-based securitisation modelling training course. Featuring: Moody's, Standard & Poor's and Fitch approach securitisation theory; rating agency techniques to calculate the default probabilities for a portfolio; rating agency cash flow model using a recent pre-sale report.
This course has now expired please email us to find out when the course will next be running.