Derivatives School (Modular Course)

Derivatives School (Modular Course)

Euromoney Training
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Course overview This five-day Derivatives School provides you with a thorough understanding of the derivatives market for both OTC and exchange-traded instruments. It focuses on how banks use derivatives to manage their own exposures and to provide practical solutions to their customers. Module 1: Fundamentals of Derivatives 1-3 December 2014, Hong Kong Module 1: Fundamentals of Derivatives (Day 1-Day 3), is a comprehensive overview of the major classes of derivatives, distinguishing between linear and non-linear derivatives. Module 2: Bank Applications of Derivatives 4-5 December 2014, Hong Kong Module 2: Bank Applications of Derivatives (Day 4-Day 5) explains, by way of specific examples, …

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Course overview This five-day Derivatives School provides you with a thorough understanding of the derivatives market for both OTC and exchange-traded instruments. It focuses on how banks use derivatives to manage their own exposures and to provide practical solutions to their customers. Module 1: Fundamentals of Derivatives 1-3 December 2014, Hong Kong Module 1: Fundamentals of Derivatives (Day 1-Day 3), is a comprehensive overview of the major classes of derivatives, distinguishing between linear and non-linear derivatives. Module 2: Bank Applications of Derivatives 4-5 December 2014, Hong Kong Module 2: Bank Applications of Derivatives (Day 4-Day 5) explains, by way of specific examples, how banks use derivatives for their own and their customer benefit. The first part looks at specific solutions for customers and focuses on the role of swaps in the primary issuance business, and managing customer FX exposures; whilst the second looks at financial engineering, and more specifically, at how derivatives can be used to reduce funding costs and/or as a means of the bank earning fees without taking a proprietary position, whilst at the same time providing investors with instruments that meet their risk/reward requirements. Save US$1,690 for registering both modules on 1-5 December 2014. Summary of course content How and why are derivatives used in practice? The difference between exchange-traded and OTC derivatives? Clearing procedures for exchange-traded derivatives Understanding the principal money market derivatives and how they are used to manage interest rate risk Swaps and how banks and other institutions use them Prima on options and their application in the management of FX risk How derivatives are embedded in common structures to provide investors with attractive risk/reward profiles Methodology The school uses interactive lectures, worked examples and real-world case studies showing in detail how the products are used and why. It shows the products in a highly practical way, without over-complication, with clear illustrations of each so that you may readily understand them and the role the bank plays. Who should attend The Derivative School is beneficial to professionals at all levels who require a thorough understanding of derivatives and their practical applications.
Module 1 - Fundamentals of Derivatives Day 1 Introduction to derivatives and derivative types Introduction to derivatives What is a derivative? The equity CFD market explained Why is there a market for derivatives? Attributes of derivatives Practical uses of derivatives Leveraged trading Risk management applications Creating synthetic positions Advantages of derivative instruments over cash instruments The trading, dealing and clearing environment OTC vs. Exchange traded products Recent developments Broking vs. Market making Trade execution Order vs. Quote driven markets Market order types Placing orders in an electronic trading platform Calculating the P & L on a futures contract Understanding the Clearing House guarantee and margining system for exchange traded instruments Case study: Delegates will complete a margining return over a period of time for a small portfolio Linear derivatives: Money market derivatives Concept of a forward contract Forward interest rates Forward rate agreements (FRA’s) Locking-in a forward interest rate Exchange traded version: Short-term interest rate (STIR) futures contracts Case study: Delegates will complete a number of exercises based on FRA’s and STIR’s Day 2 Swaps Multi-period linear interest rate derivatives: Swaps The interest rate swap (IRS) market Types of swap Interest rate swaps Currency swaps Understanding the credit risk in swaps Relationship between swaps and forwards Market structure Inter-bank vs. Customer market Broker quotes in the inter-bank market Why the market exists: Reducing funding costs by using swaps Applications of swaps Case Study: Delegates will derive the market swap bid and offer rates consistent with the actual and target borrow rates of two institutions A framework for marking-to-market OTC derivative positions Building the discount function What instruments to use "Bootstrapping" the swaps curve Case study: Using the bootstrapping approach, delegates will derive the interbank discount function Marking-to-market interest rate and currency swaps Identifying the cash flows Representing the floating cash flows as notional cash flows Extending the principle: Pricing a deferred start swap Marking-to-market a currency rate swap Case study: Using the discount function derived earlier, delegates will mark-to-market a number of swap positions Day 3 Introduction to options An options primer What is an option? Option terminology Exercise types Option "moneyness" Intrinsic vs. Time value Understanding the payoff profiles Trading and hedging strategies with equity options Understanding how to construct payoff profiles for combinations of options and the underlying Understanding the relationship between puts and call Identifying common directional and volatility trading strategies Hedging with options Case study: Delegates will draw the payoff profiles of a number of trading strategies Introduction to option pricing and risk measures The importance of correct valuation What drives the price of the option: Understanding the model inputs Approaches to option valuation: Hedge approach vs. Probabilistic approach Breaking-down the Black Scholes option pricing model Option risk measures: The "Greeks" Case study: Delegates will use the option Greeks to estimate the new price following a change in market variables Module 2 - Bank Applications of Derivatives Day 4 Bank applications of derivatives Delivering customer solutions: Using swaps in primary bond issuance Understanding the motivation for swapping from fixed financing to a floating liability Calculating the "all-in" funding cost as a spread over LIBOR Case study: Delegates will compare funding alternatives for a company Delivering customer solutions: Providing tailored hedge programmes for customers’ FX exposures The problem with “forward only” cover Using currency options to retain the up-side Creating zero premium products Introducing more innovative solutions: Using exotic options to reduce hedging costs Case study: Delegates will propose a suitable hedging strategy for a corporate with FX exposures Day 5 Financial engineering with derivatives Primary motivations for structuring Securing cheaper funding Providing attractive risk/reward profiles for investors Earning fee income The structuring process Delivering cheaper funding: Inverse floating rate notes Investor perspective Understanding the structure Variations on a theme Deferral period Adding a minimum rate Step-ups Adding leverage Pricing and valuation Hedging the issuer exposure "Super-floater" FRN's Case study: Delegates will construct a deferred reverse floating rate note, identifying appropriate parameters, and identifying the "hedge" required by the issuer to ensure LIBOR based financing Targeting the retail market: Capital guaranteed notes and high income products Understanding the process and distribution channel Who takes the risk Constructing a capital guaranteed note Introducing a cap and other common variations High income products Selling puts to increase income The listed certificate market Case study: Delegates will critically analyse a recent World Bank equity-linked note from the perspective of issuer and investor
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