Bond School

Bond School

Euromoney Training
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Course overview In recent years, bond markets have grown significantly in size and complexity as new fixed income products and derivatives products are introduced. As such, the skills needed to evaluate bond pricing and trading opportunities have evolved and new techniques must be considered. Derivative interest rate markets and trading often determine pricing in physical bond markets, a new phenomenon requiring new skills needed to assess trading and hedging opportunities. 'Bond School' provides systematic, integrated training on all bond and bond related products available in the market today. If you are looking to... Acquire the foundation knowledge necessary to price and value bonds and …

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Course overview In recent years, bond markets have grown significantly in size and complexity as new fixed income products and derivatives products are introduced. As such, the skills needed to evaluate bond pricing and trading opportunities have evolved and new techniques must be considered. Derivative interest rate markets and trading often determine pricing in physical bond markets, a new phenomenon requiring new skills needed to assess trading and hedging opportunities. 'Bond School' provides systematic, integrated training on all bond and bond related products available in the market today. If you are looking to... Acquire the foundation knowledge necessary to price and value bonds and fixed income derivate products such as swaps, futures, options, structured notes Evaluate the risk and profitable investment opportunities associated fixed income holdings and portfolios Position your bond/market skills to take advantage of opportunities then this is the course for you! Summary of course content Bond market conventions and fixed income mathematics Term structure analysis and the zero coupon yield curve Bond pricing methodologies Duration and convexity measures Caps, floors and collars Financial engineering: Structured products VaR of bond portfolios Bond trading simulation exercises Methodology The course includes sessions in which small groups of delegates participate in case studies, exercises and simulations to apply new techniques and concepts. All lecture material is reinforced with practical computer applications using Excel spreadsheets. Computer-based exercises Delegates should bring their own non-apple laptops loaded with Microsoft Excel® 2010 or later to facilitate in-class studies and exercises. Who should attend this training course? All fixed income functions Corporate finance/corporate treasury Capital markets Audit/product control/risk management/ALM Investment management Securitisation/syndication/structured finance Money markets/Repo Systems programming Government/agency funding and investment Regulation or compliance documentation Supporting publications:
Day 1 Review of the basics Key features and conventions Bond specification Bond types Fixed coupon bonds Floating rate bonds Discount securities Convertible notes Option embedded Strips Hybrid bonds Structured notes Bond market conventions Yield quotations Price quotations Review of fixed income mathematics Present value, future value and rates of interest Discount factors Capital sums Valuation of annuities Fixed rate bonds Pricing fixed coupon bonds Premium and discount bond Price to yield Building a bond price calculator Settlement price between coupon dates Price vs. Yield quotations American (and other) price markets Implied yield Computer-based exercises: Interest rate conversions, calculating clean and dirty prices, holding period yield calculation; building a bond pricing spreadsheet; computing implied yields. Floating rate bonds Pricing floating rate bonds Treatment of floating rate margins Fixed vs. Floating rate bonds Zero coupon pricing methodology Representing bonds as portfolios of zero coupon bonds Additive valuation of cash flows using zero coupon bonds Determining price and yield of coupon bonds using zero coupon yields Zero coupon yield curve construction Par rates to zero coupon rates Cheap/dear analysis Asset swap yield difference Z-spread Credit spread term structure Estimating margins Computer-based exercises: Delegates build a spreadsheet that derives zero coupon rates from market yields on coupon bonds. Day 2 Bond risk management Bond yield curves Term structure of interest rates Term structure dynamics Properties of yield curves Term structure theories Monetary policy, interest rates and central banks Inflation and yields Fluctuation of the yield curve Yield curve dynamics Yield curve theories Modelling yield curves Polynomial approximations Nelson-Siegel equations Computer-based exercise: Computing historical and implied volatility using yield and bond price data. Alternative measures of return Current yield Yield to maturity Total return Scenario analysis Comparison of bonds using total return analysis Bond price sensitivity Price risk Duration Macaulay's duration Measurement of price sensitivity Modified duration Duration properties Dollar sensitivity Basis point value Managing portfolio risk Portfolio risk indicators Duration Basis point value (DVOI) Structured note portfolio risk simulation: Delegates manage a structured note portfolio, to maximise return, in the face of yield curve volatility. Convexity Convexity defined Source of convexity Is convexity good? Convexity and volatility Zero duration, positively convex portfolios Bond portfolio management models Bond portfolio characteristics Price, value Duration, convexity, BPV Constructing targeted portfolios Computer-based exercises: Delegates construct a spreadsheet that records bond holdings and displays key portfolio statistics such as value, BPV, duration and convexity. Holding period yield immunisation A coupon bond's zero coupon, equivalent Using duration to reduce holding period yield volatility Immunisation case study: Delegates examine the efficacy of strategies designed to immunise holding period yields against volatile German interest rates. Day 3 Forward interest rates options and swaps Bond trading and portfolio management Interest rate expectations Relative value trading: Curve plays Flattering/steepening trades Butterfly trades Economic and technical analysis of yield curve trades Bond portfolio management strategies Foreign denominated bonds The foreign bond market FX market operations and conventions Settlement Spot, forward and FX option contracts Commodity currency/terms currency conventions FX vs. Yield risk Managing FX and yield curve risk simulation: Delegates balance their holding of a variety of bonds to maximise portfolio return. FX forward and option contracts are employed. Option embedded bonds Characteristics of callable bonds Valuation of callable bonds Yield to call (put) vs. Yield to maturity Price sensitivity characteristics of callable bonds Duration Convexity Convertible notes Pricing Properties Computer-based exercises: Delegates compare and contrast the properties of callable bonds using spreadsheet option macros Spot-forward interest rate relationship Spot to forward Forward to spot Yield curve from futures prices Computer-based exercises: Delegates use bill futures strip prices to construct a zero coupon yield curve Interest rate swaps Swap market background Rationale for swap transactions Basic features Indicative cash flows Using swaps to hedge an exposure to interest-rate risk Computing the fair swap fixed rate The swap fixed rate as the equaliser of value A swap as two bond transactions Value of an open swap Credit risk and swap pricing Swap variations Accreting, amortising and power swap Off market and forward swap Swaption, set in arrears swap, yield curve swaps CMT swaps Day 4 Derivatives and financial engineering Fixed interest futures markets Forward yields and futures prices Speculating using interest rate futures Hedging using interest rate futures BPV values BPV hedging BVP hedging case study: Delegates examine the effectiveness of alternative strategies to hedge a bond portfolio with interest rate futures contracts. Swap rate case study: Using current futures market data, delegates compute a fair swap rate and compare their answer against rates offered in the market. VaR for bond portfolios Covariance approach Historical simulation Monte Carlo simulation Interest rate options Rates vs. Prices Bond options Eurodollar futures options Caps, floors and collars Option value inequalities Pricing floors and floorlets Collars Computer exercises: Delegates build a spreadsheet to price caps and floors using Black’s futures model. Using caps and swaps to manage interest rate risk simulation. Delegates switch in and out of capped and swapped positions to minimise interest paid. Financial engineering – analysis of structured products Structured notes Reverse engineering: Decomposing a structured product Relationship to the par rate Classic inverse floater Gingering up the coupon The rationale for structured products The building blocks; bonds, swaps and options Structured note simulation exercises
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