SWAPS Introduction to Advanced

Course details

This Advanced SWAPS Training Course introduces the various types of option contracts and discusses how they are used by investors to hedge risk or enhance returns. Participants will evaluate the payoffs from long and short options positions and from option combination strategies used by traders and portfolio managers.

Course Content

• Day 1 -Morning
• Overview and Objectives
• — Creating and using pricing curves to structure and value swap products
• — Interest rate swaps
• — Currency swaps
• — Asset swaps
• — Credit default swaps
• — Risk management using swaps
• — Market and credit risk of swaps
• Building a Pricing Curve
• — Market instruments
• — Futures and par swaps
• — Using FRAs to construct the curve post crisis
• — Same currency basis swaps
• Swap Valuation
• — Interest accrual and market conventions
• — Discount factors
• — Floating leg valuation
• — Fixed leg valuation
• Exercise
• — Using Microsoft Excel, participants will build pricing curves and price simple swaps
• Day 1 – Afternoon
• Swap Price Sensitivities
• — Measures of swap sensitivity
• — Comparing swap duration with bond duration
• — Factor sensitivity (key rate duration)
• Level 1 Swap Applications
• — Amortizing swaps
• — Zero-coupon swaps
• — Forward start swaps
• Exercise: Structuring and Pricing Swaps
• — Using Excel and swap pricing programs
• — Addressing client situations
• — Describing client outcomes in terms of all-in rates and risk sensitivities
• Day 2 -Morning
• In-Arrears Swaps
• — LIA structure
• — Favorable market environment
• — Valuation of in-arrears swaps
• — Embedded optionality
• — Price sensitivities
• — Historical market examples
• Constant Maturity Swaps
• — Constant maturity swap structures
• — CMS valuation and sensitivity
• — Convexity and timing adjustments
• — Applications in structured notes
• Exercise: IAS and CMS Structuring, Pricing and Price Sensitivities
• Day 2 Afternoon
• Currency Swaps
• — Relationship between foreign exchange forwards and currency swaps
• — Interest rate swaps in different currencies
• — Currency bias and basis swaps
• — Valuing currency cash flows using basis-adjusted discount curves
• — Matching cash flows on bond issues
• — Exercise: Currency Swap Fair Market Value
• Asset Swaps
• — Favorable market environment
• — Monetizing premium bond under valuation
• — Excess coupon versus price premium
• — Risk profile
• — Measures of sensitivity
• — Unwinding an asset swap
• Exercise: Asset Swap Fair Market Value and Price Sensitivities
• Day 3 – Morning
• Credit Default Swaps
• — Single name credit default swaps (CDS)
• — STEC and SNAC contract specifications
• — Synthetic CDOs
• — Index linked products: CDX, iTraxx, other CDS indexes
• — Credit events, reference assets, contract specification, settlement, and credit fixings
• — CDS uses and trading strategies
• — Hedging using CDS and IRS
• — CDS valuation
• Exercise: CDS Fair Market Value and Price Sensitivities
• Day 3 – Afternoon
• Market and Credit Risk of Swaps
• — Sources of market and credit risk
• — Modeling swap mark-to-market value
• — Counterparty credit risk
• — Counterparty credit risk in perspective
• — CVA: Credit valuation adjustments
• Case Study: FX TARNs
• — Mexican retailer
• — USD exposures
• — Product offered
• — Market conditions and dynamics
• — Monte Carlo simulation of risk compared to reality
• — Subsequent events
• Program Review and Conclusion
• — Summary of key issues
• — Structuring and pricing complex deals
• — Marketing implications
• Learning Outcomes
• The key learning goals are:
• — Understand the positions to take based on the Bank’s, or the clients, expectations of future interest rates.
• — Understand how to price swaps at inception and revalue existing swap positions
• — Understand the impact of interest rate changes affects the valuation of the products
• — Case Studies are
• — Transforming cash flows using Swaps
• — Caps and Floors pricing exercise
• — Asset Swap pricing exercise