Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

• Defining structured products
• Categories of structured products
  • Asset-backed securities
  • Collateralized debt obligations (CDOs)
  • Collateralized mortgage obligations (CMOs)
• The function of the special purpose vehicle (SPV)
• Methodologies for pricing structured products
• Identification of key risks
• Accounting treatment for structured products
• Revisiting pricing techniques for structured products

Session 2: Interest Rate Structures

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

Session 3 – Options Contracts

• Overview of options
• Essential options terminology
• Exchange-traded versus Over-the-Counter (OTC)
• Understanding option premiums
• Confirmation and settlement procedures
• The role of volatility
• Option pricing methodologies –
  • The binomial model
  • The Black-Scholes model
  • Alternative approaches
• Significance of the yield curve

Session 4 – Swaps Contracts

• Overview of swaps
• Defining swaps
• Quality Spread Differential (QSD)
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Swap valuation techniques
• Model risk and the criticality of pricing data feeds
• Confirmation and settlement processes
• Counterparty credit risk
• Collateral and collateral management

Session 5 – Introduction to Derivatives

• Definition of a derivative
• Addressing concerns surrounding derivatives
• Fundamental concepts
• Arbitrage and the original purpose of derivatives – the mutual coincidence of wants
• Advantages and applications of derivatives
• Hedging strategies and trading activities

Session 6 – Foreign Exchange

• Distinction between the banking book and trading book
• Industry market conventions
• Terminology of foreign exchange
• The foreign exchange trading process
• Electronic versus telephone trading methods
• Controls within the dealing room
• Key currency terms

Session 7 – Forward Transactions

• Overview of forward contracts
• Objectives of forward contracts
• Pricing forward contracts and the significance of LIBOR
• Documentation standards for forward contracts
• Overview of the ISDA framework
• Confirming and settling forward transactions

Session 8 – Futures Contracts

• Overview of futures contracts
• The function of the futures exchange
• Characteristics of futures contracts
• Their role in trading strategies
• Pricing futures contracts
• Utilizing futures for hedging
• The importance of margin accounting
• Confirmation and settlement

Session 9: Equity Swaps

• Objectives of fund management
• Applying swaps with equity price indices
• Illustrative cash flows of an equity swap
• Total return swaps and other credit derivatives

Session 10 – Common Failures in Practice

• Scenario modeling and derivatives
• The Bankers Trust case
• The Barings case
• The Allfirst case
• The Long-Term Capital Management (LTCM) case
• The Enron case

Session 11 – Introduction to Advanced Topics

• Managing interest rate risk
• Overview of collateralized instruments
• Counterparty credit risk and derivatives
• Legal risk associated with 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 modeling techniques
• The influence of international accounting standards, specifically IAS 39 and IFRS 7
• Asset recognition and derecognition principles