Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

• Defining a structured product
• Categories of structured products
  • Asset-backed securities
  • Collateralised debt obligations
  • Collateralised mortgage obligations
• The function of the special purpose vehicle
• Methodologies for pricing structured products
• Identification of key risks
• Accounting treatment for structured products
• Techniques for structuring product pricing

Session 2: Interest Rate Structures

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

Session 3 – Options Contracts

• Overview of options
• Key options terminology
• Traded markets versus Over-the-Counter (OTC)
• Understanding option premiums
• Confirmation and settlement processes
• The concept of volatility
• Option pricing methodologies –
  • Binomial model
  • Black-Scholes model
  • Alternative approaches
• The significance of the yield curve

Session 4 – Swaps Contracts

• Introduction to swaps
• Definitions of swap instruments
• Quality spread differential
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Swap valuation techniques
• Model risk and the critical role of pricing feeds
• Confirmation and settlement procedures
• Counterparty credit risk
• Collateral management and requirements

Session 5 – Introduction to Derivatives

• Defining a derivative
• Reasons for market concerns regarding derivatives
• Fundamental concepts
• Arbitrage and the original purpose of derivatives – the mutual coincidence of wants
• Advantages and applications of derivatives
• Hedging strategies and trading

Session 6 – Foreign Exchange

• Banking book versus trading book
• Market conventions
• Terminology and language of foreign exchange
• The foreign exchange trading process
• Electronic and telephone trading methods
• Controls within the dealing room
• Currency terms and conditions

Session 7 – Forward Transactions

• Overview of forward contracts
• Objectives of forward contracts
• Pricing forward contracts and the significance 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 role of the futures exchange
• Characteristics of futures contracts
• The role of futures in trading
• Pricing a futures contract
• Hedging strategies using futures
• The importance of margin accounting
• Confirmation and settlement processes

Session 9: Equity Swaps

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

Session 10 – Practical Challenges in Execution

• Scenario modelling and derivatives
• Case study: Bankers Trust
• Case study: Barings
• Case study: Allfirst
• Case study: LTCM
• Case study: Enron

Session 11 – Introduction to Advanced Topics

• Management of interest rate risk
• Overview of 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 techniques
• The impact of international accounting standards, IAS 39 and IFRS 7
• Asset recognition and derecognition