Course Outline

The market for index-linked bonds and inflation derivatives is growing rapidly. The program covers the mechanics of the instruments, their valuation and how they can be used to take or hedge inflation exposure alone or embedded in other structures.

Traders, risk managers, fund managers, project finance and structured finance practitioners, accountants, auditors, consultants and anyone interested in the use and operation of index linked securities and their derivatives. More than half of the seminar is devoted to practical small group sessions. These intensive exercises include simulations using Microsoft Excel or other industry standard software. Participants will be able to take away worked examples including a number of Excel functions and macros.

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Who The Course is For

Traders, risk managers, fund managers, project finance and structured finance practitioners, accountants, auditors, consultants and anyone interested in the use and operation of index linked securities and their derivatives.

Prior Knowledge

Basic understanding of bonds and interest rate derivatives, intermediate maths and Excel skills

This program is eligible for 16 Continuing Education credit hours from the CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.

Day One

Introduction and Course Outline

The Building Blocks

Workshop: Estimating the inflation term structure from bonds

• The nature of inflation
• Inflation and deflation drivers
• Market participants
• The mechanics of index linked bonds
• Break-even inflation from bonds
• The limitations of break-even inflation
• Building an accurate inflation curve from bonds with B-Spines and regression

Introduction to Inflation Derivatives

• Inflation futures
• Zero coupon inflation swaps
• Revenue inflation swaps
• Inflation swap mechanics and the market
• Building an inflation curve from swaps
• X11 seasonality adjustments for pricing derivatives
• Relationship between the market for inflation linked bonds and inflation derivatives

Workshop: Zero coupon and revenue swaps with seasonality

Day Two

Inflation Derivatives in Use

• Year on year inflation swaps
• Why zero coupon and year on year inflation are different
• Forward inflation and convexity corrections
• Index linked asset swaps
• Par and proceeds asset swaps with index linked bonds
• Project finance and inflation protection

Workshop: Using inflation swaps

Inflation Options and Related Products

• LPI inflation caps and floors in pension products
• Inflation volatility considerations
• Inflation protection in retail products
• Index linked guaranteed performance bonds
• Examples of hybrid products with inflation protection

Workshop: Embedded inflation options