Course description
Interest Rate Derivatives and Swaps
Interest Rate Derivatives are an essential part of the financial marketplace. This programme will equip you to use, price, manage and evaluate interest rate and cross-currency derivatives.
The course starts with the building blocks of money markets and futures, through yield curve building to interest-rate and cross-currency swaps, and applications. The approach is hands-on and learning is enhanced through many practical exercises covering hedging, valuation, and risk management. This course also includes sections on XVA, documentation and settlement.
The programme includes extensive practical exercises using Excel spreadsheets for valuation and risk-management, which participants can take away for immediate implementation.
Learning Objectives:
- Gain familiarity with modern multi-curve interest-rate derivatives pricing
- Learn how to build a yield curve from alternative instruments, and then bootstrap discount factors and forward curves
- Explore the relationship between futures, forwards and FRAs
- Understand the four equivalent expressions of a yield curve: par curve, zero curve, discount curve and projection curve
- Construct hedges using futures, swaps and bonds
- Price and revalue swaps
- Learn how to value and hedge a swap portfolio
- Structure asset and liability (new issue) swaps
- Price and structure cross-currency swaps
- Understand documentation, credit and settlement including XVA
Upcoming start dates
Course leader
Richard Fedrick teaches courses globally in all areas of finance with a particular emphasis on interest rates and FX, derivatives, exotic options, structured products and risk management.
He started his career in 1988 in the Derivatives Product Group at Morgan Stanley, which he joined after three years of post-graduate research in Theoretical Physics. He spent three years as a rates and FX structurer at Morgan Stanley before moving to Deutsche Bank in London, where he joined a newly-formed team designing and selling structured products across Europe.
In 1993 Richard joined General Re Financial Products, a AAA-rated derivatives boutique that rapidly became established as one of the world’s leading derivatives trading operations. At GRFP, Richard initially ran the structuring desk, before moving into trading (rates and FX exotics), and finished as a Managing Director and global co-head of structuring and sales.
He joined Dresdner Kleinwort Wasserstein in 2002 before moving into the executive education industry in 2004.
Richard has a 1st Class degree in Physics from St John’s College, University of Oxford.
Suitability - Who should attend?
This course is designed for anyone who wishes to be able to price, use, market, manage or evaluate interest rate derivatives.
- Interest-rate sales, traders, structurers, quants and relevant IT personnel
- Bank Treasury and other Asset Liability Management executives
- Central Bank and Government Treasury Funding managers
- Insurance Company investment managers
- Fixed Income portfolio managers
- Company finance executives and investment bankers
- Risk managers, finance, IPV professionals, auditors and accountants
Prior Knowledge:
Basic knowledge of Microsoft Excel and a general understanding of fixed-income markets is assumed. Some of the important basic topics in bond maths are covered briefly at the beginning of the course. Comprehensive teaching on fixed income markets and bond maths takes place in the Fixed Income Markets & Analytics course.
Training Course Content
Day One
The Money Markets
- Money-market (Libor and O/N) rates
- Background to LIBOR controversy
- IBOR Transition issues, the rise of SOFR and RFRs
- How the new rates will look – synthetic term rates for SOFR
Interest Rate Swaps
- The background to swaps, today’s market and applications
- Quoting swaps – absolute rates or spreads?
- Market conventions, daycounts, structures and terminology
- Intuitive swap pricing, PV01
- Close-outs, unwinds and assignments
- LIBOR swaps versus OIS
- The modern multi-curve framework, tenor basis and term premiums
Curve Construction and Formal Valuation
- Discount curves and projection curves
- What is the right discount curve for a bank to value its trading book?
- Computing the four representations of a yield curve: par rates, zeros, the discount curve, the forward (projection) curve
- Bootstrapping an o/n discount curve
- Constructing a projection curve from FRAs / futures / swaps
- Briefly on interpolation techniques
Day Two
Hedging Short-end Risk - Futures and FRAs
- FRA mechanics and settlement
- Using FRAs to manage short term interest rate risk
- Computing the forward rate
- Eurodollar futures contract details, settlement and margining
- Using Futures to manage short term interest rate risk
- Understanding the Futures/FRA convexity adjustment
Interest Rate Swap Trading
- Swaps in funding, new issue swaps
- Asset swaps, par/par and market value structures
- ASW versus CDS spreads
- Trading swaps – curve trades and lies
Hedging Long-end Risk
- Quantifying interest rate risk – bulk DV01 and bucket DV01s
- Hedging with swaps
- Hedging with bonds and bond futures
- Quantifying and hedging basis risk
Bond Futures
- The 10yr Bund Future on Eurex – mechanics and settlement
- Conversion factors, implied repo, and the CTD
- Basis trading
- Bond futures DV01
Day Three
Cross-Currency Swaps
- Cross-currency swap mechanics, comparison with FX swaps
- The CRX basis and its drivers
- Applications of CRX swaps
- CRX swaps and credit exposure
- Doing it properly: CRX-adjusted discount curves
Docs, Credit and Settlement
- Swap clearing and CCPs
- Bilateral (OTC) swaps – the role of the ISDA Master
- Credit mitigation – quantifying exposure (EAD, EPE, PFE)
- CSAs and collateral
XVA Adjustments
- The impact of asymmetric collateral positions
- FVA and the cost of funding
- Pricing credit risk, CDS fundamentals
- Computing the cost of credit exposure (CVA)
- Own-risk adjustment (DVA)
- The double-counting trap between FVA and DVA
Course delivery details
Courses are delivered in the London classroom and live online via LFS Live in London, New York, and Singapore time zones.
Please contact LFS for more details.
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Reviews
Average rating 4.7
The course provided invaluable insights into a wide range of interest rate derivatives and has enhanced my understanding of these complex financial instruments. I am grateful to...
I advise this course to anyone who wants to discover/rediscover a passion for maths and theoretics of Derivatives. The teacher was amazing, able to keep my attention over three ...
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London Financial Studies are specialists in delivering professional development for finance professionals focusing on capital markets. LFS provide individuals, teams and companies with expert teaching that combines theoretical understanding with practical experience, giving them the knowledge to operate at the...
The course provided invaluable insights into a wide range of interest rate derivatives and has enhanced my understanding of these complex financial instruments. I am grateful to...