Fixed Income Winter School

A 5-day, intermediate-level training programme on fixed income securities, fixed income derivatives and fixed income structured products. Featuring: Review of modern bond, money and repo markets Bond analytics: pricing and risk management Fixed income derivatives: bond futures pricing and applications Fixed income structured products: Capital and income protected notes Reverse/inverse floating rate notes Callable and puttable bonds Range notes and range accrual notes Course Background In recent years, the fixed income markets have witnessed significant change and innovation, resulting from factors such as the rapidly maturing swaps market and demand for structured products. The increasing commoditisation of the swaps market, along with recent innovations in the credit derivatives market, has led to fundamental shifts in core relationships. The course is directed at those who require up-to-date market knowledge on how such changes will impact their professional lives. The programme is intensive, requiring a high level of commitment from the delegates. The course will be taught using a combination of lectures, case studies, practical workshops and pc-based exercises. Who Should Attend The course will be of value to professionals in the following areas : Corporate Finance/Corporate Treasury Capital Markets Audit/Product Control/Risk Management/ALM Research and Analysis Sales and Trading Investment Management Origination Securitisation/Syndication Structured Finance Money Markets/Repo Systems Programming Funding Government/Agency Funding and Investment Regulation/Compliance/Documentation Course Level Delegates should be familiar with the basics of bond mathematics, measures of return, characteristics of bonds and bond market conventions. Whilst a review of the basics will take place on Day One, the course will move to an intermediate level thereafter. Delegates are likely to have some previous practical experience of fixed income trading, risk management, operations, structuring/origination or investment/analysis. Course Information Delegates are requested to bring their own laptops loaded with Excel and CD rom capabilities for use during the course. If you are unable to bring a laptop, please inform the course manager prior to the course, and a PC will be arranged. To find out more about accommodation possibilities and places of interest in Paris visit: http://en.parisinfo.com/
Day 1 The Securities Market Place The securities market place What is investment banking? Investment v commercial banking Financial markets and their products Risk versus return How the bond markets work What is a Bond? Who issues and invests Bond characteristics Coupon: fixed, floating, zero Price/yield relationship Inflation-linked securities Credit Rating Agencies Fixed income valuation Calculating a bond’s price on a coupon date Clean (quoted) v dirty price Common accrual conventions Calculating a bond’s price on a non-coupon date Day 2 Bond Analytics: Pricing and Risk Analysis Yield curves Interpreting the price: defining yield measures Yield to maturity as an internal rate of return (IRR) Yield to call Running yield and the yield curve and yield curve theories Econometric forecasting of the yield curve What is the 'benchmark curve'? What drives credit spreads? The role of the zero coupn curve The problem with YTMs: Re-investment risk Understanding the zero-coupon bond pricing concept and its importance in the marking-to-market process Constructing the zero-coupon equivalent yield curve Bond stripping Using zero-coupon discount factors to mark-to-market positions Using the zero curve: Identifying miss-priced bonds Horizon yield analysis Introduction to bond risk management Why measure interest rate exposure? What influences a bond’s price Macaulay duration The convexity adjustment Present value of a basis point Calculating the hedge ratio Day 3 Fixed Income Derivatives The swaps market Swap types: interest, currency and basis swaps Market structure Market quotation conventions Accrual conventions Rationale for the swap market Using swaps to aid asset/liability management Swaps and the primary (new issue) debt market New issue arbitrage using currency swaps Creating synthetic FRNs: the asset swap Understanding the credit bond/swap relationship Using swaps as interest rate risk management tools Rationale for use The bond futures contract The principal contracts and where they trade The role of Exchanges and the Clearing House Understanding the margin payments Introducing the contract spec The deliverable basket concept The price/conversion factor Government bond futures: contract limitations Alternative derivative instruments Futures referenced off the swaps curve Bond Index products Applications of bond funtures Trading and risk management applications Creating synthetic investments with bond futures contracts Alternative instruments: Swapnote® futures contracts Day 4 Fixed Income Structured Products (1) The building blocks Rationale and concept of structured notes Market participants: Who issues and invests Structure and design Collateralised asset swap: example Collared FRN: example Unravelling a structured note: reverse / inverse floating long range notes When to issue Defining the Issuer hedge Pricing and valuation Variations Deferred inverse floater Step-up inverse floater Superfloater FRN Next generation products Calable and puttable bonds Bond securities with embedded options: callable; puttable; convertible; and exchangeable bonds Rationale for issuance Attractions to investors Using swaptions to monetise options embedded in callable and puttable bonds Introduction to swaptions Using swaptions to create synthetic callable/puttable bonds Step-up and multi-step callable bonds Concept Investor motivation Day 5 Fixed Income Structured Products (1) Synthetic bonds (1): Capital and income protected notes Constructing capital protected notes Typical structures: Currency linked notes Equity linked notes Variations: Introducing a cap Basket structures Ladders High income bonds: income protected notes Putting together a reverse convertible Understanding the risks for the investor Rande notes and range accrual notes Rational Construction Prima on digital options Pricing digital options Building a range note Building a range accrual note Understanding the market conditions conducive to issuance Course summary and close