Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

• What is a structured product?
• Types of structured products
  • Asset-backed securities
  • Collateralized debt obligations
  • Collateralized mortgage obligations
• The role of the special purpose vehicle in structured products for government
• How to price structured products
• What are the key risks associated with structured products?
• Accounting practices for structured products
• Methodologies for pricing a structured product

Session 2: Interest Rate Structures

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

Session 3 – Options Contracts

• Introduction to options
• Key terminology in options trading
• Traded versus over-the-counter (OTC) options
• Option premium and its components
• Confirmation and settlement processes for options
• Volatility in the context of options trading
• Pricing an option using various models:
  • Binomial model
  • Black-Scholes model
  • Other pricing approaches
• The significance of the yield curve in options trading

Session 4 – Swaps Contracts

• Introduction to swaps
• Definitions and key terms for swaps
• Quality spread differential in swap pricing
• Interest rate swaps and their applications
• Currency swaps and cross-currency considerations
• Methods for pricing interest rate swaps
• Valuation techniques for swap contracts
• Model risk and the importance of accurate pricing feeds
• Confirmation and settlement procedures for swaps
• Counterparty credit risk management in swaps
• Collateral management practices in swap transactions

Session 5 – Introduction to Derivatives

• What is a derivative?
• Concerns and risks associated with derivatives
• Key concepts in derivatives trading
• Arbitrage and the original purpose of derivatives – mutual coincidence of wants
• Benefits and uses of derivatives in financial markets
• Hedging strategies and trading applications for derivatives

Session 6 – Foreign Exchange

• Banking book versus trading book in foreign exchange
• Market conventions in foreign exchange transactions
• Terminology and language of foreign exchange
• The process of trading foreign exchange
• Electronic and telephone methods for trading foreign exchange
• Dealing room controls and compliance in foreign exchange
• Key currency terms and definitions

Session 7 – Forward Transactions

• Introduction to forward contracts
• Purpose and applications of forward contracts
• Pricing a forward contract and the role of Libor
• Documenting and structuring forward contracts
• Introduction to the International Swaps and Derivatives Association (ISDA)
• Confirming and settling forward contracts

Session 8 – Futures Contracts

• Introduction to futures contracts
• The role of the futures exchange in trading
• Nature and characteristics of futures contracts
• The role of futures in financial markets and trading strategies
• Methods for pricing a futures contract
• Hedging techniques using futures
• Importance of margin accounting in futures trading
• Confirmation and settlement processes for futures

Session 9: Equity Swaps

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

Session 10 – What Goes Wrong in Practice

• Scenario modeling and the use of derivatives
• Case study: Bankers Trust
• Case study: Barings
• Case study: Allfirst
• Case study: Long-Term Capital Management (LTCM)
• Case study: Enron

Session 11 – Introduction to Advanced Topics

• The management of interest rate risk in financial instruments for government
• Introduction to collateralized instruments and their uses
• Counterparty credit risk and derivatives management
• Legal risks associated with derivatives transactions
• Value at risk (VaR) and exposure at default (EAD)
• Loss given default (LGD) and probability of default (PD)
• Stress testing methodologies and liquidity risk management
• Scenario modeling techniques for financial risk assessment
• The impact of international accounting standards, IAS 39 and IFRS 7, on derivatives
• Asset recognition and derecognition practices in derivatives