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
  • Collateralized mortgage obligations
• The function of special purpose vehicles
• Methodologies for pricing structured products
• Identification of key risks
• Accounting treatment for structured products
• Practical approaches to pricing structured products

Session 2: Interest Rate Structures

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

Session 3 – Options Contracts

• Fundamentals of options
• Standard options terminology
• Exchange-traded versus Over-The-Counter (OTC) markets
• Understanding option premiums
• Procedures for confirmation and settlement
• The role of volatility
• Option pricing models –
  • Binomial model
  • Black-Scholes model
  • Alternative methodologies
• The significance of the yield curve

Session 4 – Swaps Contracts

• Overview of swaps
• Defining swap agreements
• Quality spread differential
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Valuing swaps
• Model risk and the critical nature of pricing data feeds
• Confirmation and settlement processes
• Counterparty credit risk
• Collateral and collateral management strategies

Session 5 – Introduction to Derivatives

• Defining a derivative
• Common concerns regarding derivatives
• Foundational concepts
• Arbitrage and the original intent of derivatives – mutual satisfaction of wants
• Advantages and applications of derivatives
• Hedging strategies and trading

Session 6 – Foreign Exchange

• Banking book versus trading book distinctions
• Market conventions
• Foreign exchange terminology
• The mechanics of trading foreign exchange
• Electronic and voice-based trading methods
• Controls within the dealing room
• Standard currency terms

Session 7 – Forward Transactions

• Overview of forward contracts
• Objectives of forward contracts
• Pricing forward contracts and the relevance of LIBOR
• Documentation of forward contracts
• Introduction to the ISDA framework
• Confirming and settling forward contracts

Session 8 – Futures Contracts

• Overview of futures contracts
• The function of the futures exchange
• Characteristics of futures contracts
• The role of futures in trading activities
• Pricing futures contracts
• Hedging strategies using futures
• The importance of margin accounting
• Confirmation and settlement processes

Session 9: Equity Swaps

• Objectives in fund management
• Utilizing swaps linked to equity price indices
• Illustrative examples of equity swap cash flows
• Total return swaps and other credit derivatives

Session 10 – Practical Challenges in Derivatives

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

Session 11 – Introduction to Advanced Topics

• Managing interest rate risk
• Overview of collateralized instruments
• Counterparty credit risk in derivatives
• Legal risks 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 management
• Scenario modeling techniques
• The impact of international accounting standards: IAS 39 and IFRS 7
• Asset recognition and derecognition principles