Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

• Defining a structured product
• Categorisation of structured products
  • Asset-backed securities
  • Collateralised debt obligations
  • Collateralised mortgage obligations
• The function of special purpose vehicles
• Methodologies for pricing structured products
• Identifying critical risks
• Accounting treatment for structured products
• Revisiting the pricing of structured products

Session 2: Interest Rate Structures

• Embedded options and swaps
• Reverse floaters
• Leveraged swap-linked notes
• Bonds indexed to rates other than LIBOR
• Extendible and cancellable swaps
• Embedded swaptions

Session 3 – Options Contracts

• Overview of options
• Key terminology
• Distinction between traded and OTC instruments
• Understanding option premiums
• Confirmation and settlement procedures
• The concept of volatility
• Pricing an option
  • The Binomial model
  • The Black-Scholes model
  • Alternative approaches
• The significance of the yield curve

Session 4 – Swaps Contracts

• Overview of swaps
• Core definitions
• Quality Spread Differential (QSD)
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Valuation of swaps
• Model risk and the critical nature of pricing feeds
• Confirmation and settlement processes
• Counterparty credit risk
• Collateral management

Session 5 – Introduction to Derivatives

• Defining a derivative
• Addressing concerns surrounding derivatives
• Fundamental concepts
• Arbitrage and the original intent of derivatives – achieving mutual coincidence of wants
• Benefits and applications of derivatives
• Hedging versus trading strategies

Session 6 – Foreign Exchange

• Banking book versus trading book
• Market conventions
• The language of foreign exchange
• The mechanics of foreign exchange trading
• Electronic and telephone trading methods
• Dealing room controls
• Currency terminology

Session 7 – Forward Transactions

• Introduction to forward contracts
• The purpose of forward contracts
• Pricing forward contracts and the role of LIBOR
• Documentation of forward contracts
• Overview of ISDA frameworks
• Confirming and settling forward contacts

Session 8 – Futures Contracts

• Introduction to futures contracts
• The role of the futures exchange
• Characteristics of futures contracts
• Their role in trading activities
• Pricing a futures contract
• Hedging strategies using futures
• The significance of margin accounting
• Confirmation and settlement

Session 9: Equity Swaps

• Fund management objectives
• Utilising swaps with equity price indices
• Example of cash flows in an equity swap
• Total return swaps and other credit derivatives

Session 10 – Practical Challenges and Failures

• Scenario modelling and derivatives
• The Bankers Trust case
• The Barings collapse
• The Allfirst case
• LTCM
• The Enron scandal

Session 11 – Introduction to Advanced Topics

• Managing interest rate risk
• Overview of collateralised instruments
• Counterparty credit risk in derivatives
• Legal risk and derivatives
• Value at Risk (VaR) and Exposure at Default (EAD)
• Loss Given Default (LGD) and Probability of Default (PD)
• Stress testing and liquidity risk
• Scenario modelling techniques
• The impact of international accounting standards, specifically IAS 39 and IFRS 7
• Asset recognition and derecognition principles