Advanced Swaps Training Course

A practical guide to the strategies and techniques necessary to understand, analyse, assess and utilise the swaps market fully. 

By the end of this course, you will be able to:

• Understand the key concepts of yield curve modelling
• Apply and use interest rate derivatives effectively
• Price and hedge interest rate swaps
• Price exotic swaps
• Calculate the risks and rewards of swaps market
• Structure interest rate options into structured bonds
• Fully grasp the complexities of the CDS market

Scroll down for agenda

Day One

Broad Introduction to the Swaps Market

• Evolution of the swap market
• Main uses of swaps
• Examples of the concept of comparative advantage
• Some market statistics

Building the Yield Curve

• Zero coupon yield curve approach
• Yield curve construction using a futures strip and par swap rates
• Bootstrapping a curve from market data

Short-term Money Market Swaps

• Estimation of forward rates
• Pricing a FRA
• Hedging a FRA with a pair of deposit futures contracts:
  - Measuring hedge effectiveness
• Pricing a short-term swap using a futures strip

Exercise: Completing the pricing and hedging of the swap - Demonstrating hedge effectiveness

Generic IRSs and their Relationship to Bond Markets

• Valuing the floating side
• Valuing the fixed side
• Components of the swap spread
• Valuation using forwards method
• Comparison with a notional principal approach

Pricing simple non-generic swaps using implied forwards

• Forward start
• Amortising
• Rollercoaster

Exercise: Pricing simple non-generic swaps

Pricing Cross-Currency Swaps

• Pricing and valuation of cross currency swaps
• Generic and non-generic cross currency swaps
• Cross currency coupon swaps
• Pricing and valuation of cross-currency basis swaps; pricing bias
• Basis point conversion factors; PVBP conversion matrix
• Basis point conversion factors

Day Two

Single Market Exposure: Interest Rates

• Using company reports to:
  - Identify and quantify the risks and opportunities
  - Identify possible sources of internal or external conflict
• Using derivatives to improve the risk-return trade-off
• Selling it all to the clients – and to their shareholders
• Counterparty credit exposure

Case Study: Transportation (British Airways and a European company)

Asset Swaps

• How significant is the business
• Looking at the drivers and spreads
• Using notional principals  
• Structuring and pricing methodologies for asset swaps
• Par/par asset swap
• Yield/yield asset swap
• Yield Curve Shift – Z spread analysis

Exercise: Valuing an asset swap

Swap Trading

• How to manage a portfolio
• What risks do you want to run – understanding Value-at-Risk (VaR)
• Yield curve arbitrage
• Delta neutral curve trading
• Relative value and directional trading strategies

Hedging and Arbitrage

• Creating a delta-sensitivity ladder of a swap portfolio
• Building an equivalent portfolio
• Hedging a swap portfolio
• Practical issues of swap risk management

Case Study: Demonstrating an effective hedge for a portfolio

Day Three

Interest Rate Options - The Greeks

• The volatility trader – how they review their positions
• Delta hedging and its dynamics
• Delta and Gamma
• Rho, Theta, Vega
• Volatility trades – straddles, strangles

Case Study: Understanding delta hedging

Applications of Interest Rate Options in Structured Bonds

• Concept and rationale
• Key structural features
• Value aspects
• Capped and floored floaters
• Range floaters and leveraged floaters
• Reverse FRNs
• Callable bonds
• European and Bermudan style swap options
• Pricing:
  - Black model
• Option embedded swaps
• Callable and puttable swaps
• Switchable swaps, accrual swaps
• Applications: structured (callable, puttable)bonds; call monetisation
• Index amortising swaps

Case Study: Comparing caps, collars and swaps

Advanced Swaps and Options

• Different types of exotic option
• Volatility trades – straddles, strangles
• Volatility and correlation effects
• Inflation swaps
• Pricing and valuing inflation swaps
• Constructing an inflation swap curve
• Applications of inflation swap
• Constant maturity swaps

Case Study: Using combinations to achieve desired view

Credit Default Swaps

• Understanding the CDS market
• Pricing a CDS
• Understanding the relationship with asset swaps
• Review both sovereign and corporate CDS pricing
• The relationships between credit spreads
• Reverse engineering a credit linked notes

Case Study: An analysis of structured products - understanding the components

The course is designed to be highly interactive and relies on the extensive use of Excel based case studies to develop a detailed understanding of interest rate derivatives and their applications.

The course will present you with a unique opportunity to integrate your theoretical knowledge of swaps with state-of-the-art market applications.  This will be reinforced via the use of practical software programmes that you will utilise to complete a number of tasks and exercises, ensuring learning and full comprehension of topics and current issues.