Course Objectives

• Explore the relationship between futures, forwards and FRAs
• Build a zero coupon yield curve
• Construct hedges
• Price and revalue swaps
• Structure asset and debt swaps
• Design, price and use caps, floors, collars and swaptions
• Structure and market combinations of derivative products
• Use these instruments for taking positions or hedging exposures

Who The Course is For

This course is designed for anyone who wishes to be able to price, use, market, manage or evaluate interest rate derivatives and currency swaps including:

• Directors, treasurers, dealers and trainees
• Corporate finance and investment managers
• Accountants, auditors and IT personnel
• Derivatives marketing executives, consultants, advisors and brokers

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Prior Knowledge

Basic understanding of financial markets and basic knowledge of Microsoft Excel.

This program is eligible for 32 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

The building blocks

• The nature of interest rates
• Basis periodicity and compounding
• The time value of money
• Forward rates and discount factors
• Sensitivity and duration

The essentials of futures & FRAs

• Managing short term interest rate risk
• FRA settlement and cashflow calculations
• Position DV01
• Short term Interest rate Futures
• Contract details
• Margining
• Globex
• Simple hedges using FRAs and Futures
• Comparision: Forwards, FRAs, Futures
• Futures, FRAs and convexity

Workshops: applying the basics, hedging interest rate risk

Day Two

Yield curves and how to build them

• Why a yield curve
• Building zero curves manually
• Linear and spline interpolation

Interest rate swaps

• Definitions and history
• Today's market
• Cash flows and pricing for zero NPV
• Revaluation and buyout
• Amortising and accreting structures
• Hedging

Workshops: yield curve building, swap pricing and valuation

Day Three

Currency and asset swaps

• Swaps and forward FX
• Basis swaps
• Conversion factors
• Pricing and structuring currency swaps
• Using and pricing par and proceeds asset swaps

Interest rate options: caps and floors

• Definitions and structure
• Determination of prices
• Volatility and its effects
• Black's model and assumptions
• Hedging factors

Workshops: using currency swaps, valuing caps and floors

Day Four

Using and marketing combinations

• Cap-floor-swap mix
• Zero cost collars
• Participating caps
• Market developments

Interest rate options - swaptions

• The mechanics
• How values are determined
• Pricing models and assumptions
• Caps and swaptions
• Hedging factors

Workshops: evaluating the alternatives, using swaptions