Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

• Defining a structured product?
• Classifications of structured products
  • Asset-backed securities
  • Collateralised debt obligations
  • Collateralised mortgage obligations
• The function of the special purpose vehicle
• Methodologies for pricing structured products
• Identifying key risks?
• Accounting standards for structured products
• Approaches to pricing a structured product

Session 2: Interest Rate Structures

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

Session 3 – Options Contracts

• Overview of options
• Key terminology
• Exchange-traded versus OTC
• Option premium
• Confirmation and settlement processes
• Volatility
• Pricing an option –
  • Binomial model
  • Black-Scholes
  • Alternative approaches
• The significance of the yield curve

Session 4 – Swaps Contracts

• Overview of swaps
• Definitions of swaps
• Quality spread differential
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Swap valuations
• Model risk and the importance of pricing feeds
• Confirmation and settlement
• Counterparty credit risk
• Collateral and collateral management

Session 5 – Introduction to Derivatives

• Defining a derivative?
• Reasons for concern regarding derivatives?
• Core concepts
• Arbitrage and the original purpose of derivatives – the mutual coincidence of wants
• Benefits and applications of derivatives
• Hedging and trading

Session 6 – Foreign Exchange

• Banking book versus trading book
• Market conventions
• Terminology of foreign exchange
• The process of trading foreign exchange
• Electronic and telephone trading
• Dealing room controls
• Currency terms

Session 7 – Forward Transactions

• Overview of forward contracts
• Purpose of forward contracts
• Pricing a forward contract and the importance of LIBOR
• Documentation of a forward contract
• Introduction to the ISDA
• Confirming and settling forward contracts

Session 8 – Futures Contracts

• Overview of futures contracts
• The role of the futures exchange
• The nature of futures contracts
• Their role in trading
• Pricing a futures contract
• Hedging with futures
• The importance of margin accounting
• Confirmation and settlement

Session 9: Equity Swaps

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

Session 10 – What goes wrong in practice

• Scenario modelling and derivatives
• Bankers Trust
• Barings
• Allfirst
• LTCM
• Enron

Session 11 – Introduction to Advanced Topics

• The management of interest rate risk
• Introduction to collateralised instruments
• Counterparty credit risk and derivatives
• Legal risk and derivatives
• Value at risk and Exposure at default
• Loss given default and probability of default
• Stress testing and liquidity risk
• Scenario modelling
• The impact of international accounting standards, IAS 39 and IFRS 7
• Asset recognition and derecognition