Advanced Studies and Training Centre

Course Objectives
This programme through case study analysis, practical examples and PC workshops, provides an ideal platform for you to rapidly enhance your knowledge of derivative instruments and markets. It will additionally prepare you to meet the challenge of continuing developments in derivative products and markets, enabling you to profit from the opportunities available and to maintain your knowledge at the forefront of financial markets. This is an intermediate level course developed to meet the needs of financial professionals who want to fully master the complexity of a broad range of derivative products.
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Who Should Attend?
Traders and sales personnel in money market, FX, fixed income and equity areas, derivatives traders, sales personnel, risk controllers and risk managers, financial structurers and engineers, investment managers and others working in a variety of operational functions, including accounting and audit, compliance, legal, middle and back office personnel.
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Course Outline
Day 1 Introduction to Derivative Instruments and Markets Evolution and development of the derivative markets Derivatives defined: characteristics of derivative instruments Types of derivative instrument Forwards/futures Futures Swaps Options Listed Vs. OTC markets Pricing and valuation of derivative instruments Operational considerations Systems and human resource requirements Operational risks Potential costs and benefits of the use of derivatives Uses and benefits of derivatives -trading, hedging and arbitrage Accounting for derivatives under IAS39/FAS133 Forwards and Futures contracts Pricing principles of forward contracts Applications of forward contracts in trading and hedging Arbitrage-free pricing Backwardations and the breakdown of arbitrage-free valuation Counterparty credit risk exposure Futures contracts The mechanics of future contracts and futures markets Margining, clearing and settlement procedures Interest Rate and Currency Derivatives Interest rate forward contracts - FRAs The FRA market - conventions: price quotation, settlement Short term interest rate futures Basis risk FX Forwards and Currency futures Pricing using interest rate differentials Non-deliverable forwards (NDFs) Pricing, fixing and settlement FX Swaps Pricing; swap points determination Quotation conventions - discounts and premiums Applications of FX derivatives Currency risk management; hedging transaction and translation exposures Synthetic currency assets and liabilities - Exploiting arbitrage opportunities Case study Calculating swap points; determination of synthetic interest rates from swap data Swaps Markets Evolution and development of the swaps market Swaps market dynamics Swaps market participants and roles Applications of swaps to trading, portfolio risk management and funding (ALM) Swaps documentation and legal issues Termination, novation Netting agreements Interest Rate and Currency Swaps Generic swap structures Interest rate swaps Cross currency swaps Non-generic swaps - (amortising, forward etc.) Swaps market conventions and practices
Day 2 Pricing and Valuation of Interest Rate and Currency Swaps Basic foundations of swap valuation - nil value of par swaps Discounted cash flow (DCF) methodology Estimation of zero coupon discount factors from market data Pricing and Valuation techniques Practical pricing and valuation applications Swap terminations and novation - fee calculation Off-market swap structures - margin and fixed coupon calculation Pricing and Valuation of Cross Currency Swaps Basis point conversion factors Case study Pricing and valuation of interest rate and currency swaps Interest Rate and Currency Swaps - Funding, Risk Management and Trading Applications Applications of interest rate derivatives to client risk management strategies Hedging currency and interest rate exposures
Day 3 Options - Fundamental Properties and Concepts Option market definitions and terminology: Put and call options European, American options In-, at- and out-of-the-money options Option 'pay-off' profiles and their interpretation An intuitive approach to understanding option valuation and value drivers Intrinsic value and time value Volatility in option valuation Put-Call parity Exchange traded and OTC option markets Understanding Option Valuation - Option Pricing Intuitive approach to understanding option valuation Option pricing models The Black-Scholes option pricing model Pricing determinants for vanilla options Pricing options on forwards, futures - the Black model Advantages and shortcomings of Black-Scholes - a critical analysis Simulation methods of option valuation - Monte Carlo methods Volatility in option valuation Time value: impact on option values Volatility estimation Historic, implied and realised volatility measures Volatility smiles and skews Option Risks Dynamic risk characteristics of options The Greeks (Delta, Gamma, Theta, Vega, Rho and Phi risks) Interpretation of Delta - cash equivalent risk representation Market impact of Delta hedging Why Delta hedge - a brief overview of volatility risks (Gamma, Vega) Understanding and interpreting Gamma Time decay Carry related risks (Rho, Phi) Volatility Analysis Implied and Realised volatility measures Volatility smiles and skews Term structure of volatility Trading volatility Case study Constructing simple option strategies; interpretation of pay-off profiles
Day 4 Option Trading, Hedging and Arbitrage Strategies Risk-reward profiles of naked option strategies Market risks: Directional risk (Delta) Volatility risk (Gamma, Vega) Hedging and Risk Management strategies using options Risk reduction strategies Puts, Collars Yield enhancement strategies Covered over and under-writing strategies Directional trading strategies Risk reversals and Synthetics; Range forwards; Synthetics Option Spreads (Vertical, Calendar) Volatility and Correlation trading strategies Analysis of trading strategies Payoff profiles Instantaneous risks (delta, gamma etc.) Interest Rate Options Caps, floors and swaptions Pricing techniques: Black Vs. term structure models Cap/floor market conventions, terminology, price quotation basis European and American style swap options Swap option market conventions, terminology, price quotation basis Applications in trading, investment and portfolio management Extendable and cancelable swaps Hybrids; participating caps; Corridors, Collars Trading and hedging applications of interest rate options Embedded caps and floors; Capped FRNs, structured notes Case study Corporate interest rate exposure management using interest rate options, collars, swaptions Currency Options Fundamental properties of Currency Options Option pricing - determinants of option value (Garman-Kohlhagen model) Market conventions, terminology, price quotation basis Puts, Calls, Range forwards Option price sensitivities (Delta, Gamma, Theta, Vega, Rho) Dynamic risk management using delta hedging; limitations Hedging transaction and economic exposure using FX forwards and options Applications to currency exposure management Option trading and hedging strategies Collars, Cylinders, Range and Participating forwards Exotic Currency options Barrier (Knock-in, out) options Average rate (Asian) options Digital options Pricing and risk management of exotic option exposures Case study Constructing currency option hedges; pricing exotic FX option structures: forward plus, knock-out forwards
Day 5 The Credit Derivatives Market Market overview Evolution and market development Recent developments and key issues Terminology and nomenclature Market participants Credit indices (iTRAXX) Asset Swaps Mechanics of pricing and structuring asset swaps Asset swapping illiquid and structured securities (Convertibles) Asset swaps and the interrelationship between swap and bond markets Benefits of asset swaps in credit portfolio management Asset Swap spreads in relative value analysis, credit derivative pricing Case study Structuring asset swap packages; determining credit spreads Credit Derivatives: Default Swaps (CDS) Definitions and nomenclature Credit Events - Definitions Documentation (ISDA credit default swap master agreement) Single asset and basket structures, ABS CDS, LCDS Settlement mechanisms REDs and CLIPs DTCC, Swapswire clearing and settlement mechanisms Credit indices (iTRAXX) ITRAXX index CDS Standardised contract terms Transaction and settlement mechanics Uses and Benefits of Credit Derivatives Credit (portfolio) risk management Regulatory capital management Credit risk diversification, risk reduction Investment applications (Synthetic asset generation) Leverage (unfunded exposures) Yield enhancement (exploiting of credit arbitrages) Market access (synthetic loan generation) Credit trading Pricing and Valuation of Credit Derivatives Estimation of default probabilities Building a default curve Estimation of recovery rates Arbitrage based approaches (Asset swap pricing) Understanding the relationship between CDS premia and Asset swap spreads (ASW) Case study Pricing and valuation credit default swaps
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Training Expert - Gail Rolland
Gail Rolland has been working as a financial markets trainer and consultant for the past fifteen years. This follows a period of some ten years working in the markets themselves for several international banks in both London and New York. During this time her hands-on experience covered many areas including FX and money markets, fixed income and derivatives, as well as providing an in-depth knowledge of the infrastructure of the banking and finance industry. Before entering consultancy Gail studied for a MSc in Personnel Management and Business Administration in order to gain a solid theoretical base to add to her practical knowledge to ensure the best possible foundation for offering consultancy and training solutions within the industry. As a consultant she has devised and presented training courses and presentations on many aspects of the financial markets to groups ranging in size from large conferences of 100 plus delegates to extremely tailored one-on-one training to meet a particular need of a market participant. Topics she would regularly present cover the whole spectrum of financial markets through from providing an introduction to financial markets to more advanced sessions on, say, portfolio management strategy or credit derivatives and risk management, along with training for market examinations such as the ACI Dealing Certificate, Diploma and Operations Certificate in the fixed income area she works with ICMA on both the newly launched Financial Markets Foundation Course and the IFID Certificate, for which she is the Distance Learning e-tutor. She regularly delivers training in London, Europe, the United States and Asia which means she is able to provide a very international perspective on what is happening in the global markets today. Her training assignments normally comprise tailored courses but she has also run public courses under the sponsorship of companies such as Risk Waters Group and Wall Street Technology and she is also a visiting lecturer on post-graduate finance courses at Reading University. On the consultancy side she has provided management consultancy, particularly focussing on human resource management and business development, to many different organisations. Projects have included training needs analysis, skills audit, employee deployment strategy, as well as developing training programmes with a particular emphasis on blended solution learning. She has also worked with providers of financial training software such as Intuititon and Zoologic, providing both editorial and content development expertise, and has further been involved in the development of bespoke e-based training material for specific clients. Other consultancy assignments include strategic market sector analysis, and advising on the viability of location choices for establishment of both front and back office functions. Topics on which Rolland Consultancy regular offers training will typically include the following: Overview / Introductory courses such as introduction to banking, capital markets, risk management, technical analysis Financial market infrastructure including courses designed to illustrate how financial institutions work, how departments relate with one another, and to give participants a chance to consider the workflow of various market roles Capital markets, including market practice, valuation, portfolio management etc. Derivatives and risk management Credit risk and derivatives FX & Money, including coverage of the ACI Dealing Certificate, Diploma and Operations Certificate Operations and compliance Selling and presentation skillsmes Specifically tailored graduate program
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