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Course details

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Advanced Derivatives

A comprehensive course covering the key pillars of the modern derivatives world
  • Course Overview 

    This is a comprehensive five day programme, split into two halves: a detailed 2-day course on interest rate derivatives, and a 3-day course covering equities, FX, credit and XVA. The content is modular, with each session covering the key pillars of the modern derivatives world.

    Module 1 – Interest Rate Derivatives

    Day 1 - Interest rate derivatives, swaps and cross-currency swaps, modern yield curve construction

    Day 2 - Interest rate options and exotics, CMS and applications, structured products


    Module 2 – Equities, FX, Credit and XVA

    Day 3 - Equity and FX options, exotics, structured products and trading the volatility surface

    Day 4 - Credit derivatives, CDOs and structured credit

    Day 5 - Funding, XVA, and the new regulatory world


    The emphasis is on a healthy mix of theory and client applications, and is illustrated throughout with real-life examples and case-studies.

     

  • Module 1 - Interest Rate Derivatives

    Day 1

     

    Interest Rate and Cross-Currency Swaps


    Interest rate swaps

    • Quotation and terminology
    • Drivers of yield curve shape and level
    • Understanding swap spreads


    Settlement and clearing

    • OTC versus central clearing
    • The ISDA Master and the role of the CSA
    • Collateral and netting
    • Briefly on CVA adjustments


    Customer applications

    • Using swaps to hedge debt issuance
    • Asset swaps
    • Curve trades and other proprietary positions


    Formal swaps pricing

    • From par rates to discount curves and forwards
    • Bootstrapping the discount curve
    • The choice of the discount curve – why OIS?
    • Tenor basis and projection curves
    • Modern yield curve construction


    Cross-currency swaps

    • Mechanics of a CRX swap
    • Understanding the drivers of the CRX basis spread
    • Customer applications

    Day 2

    Interest Rate Options


    Caps, floors and collars

    • Mechanics and settlement


    Swaptions

    • Structure and mechanics
    • European versus Bermudan settlement


    Constant maturity swaps

    • Mechanics, quotation and settlement
    • Understanding the convexity adjustment
    • Model-independent replication and hedging of the convexity
    • Applications in liability-management


    Understanding the volatility surface

    • Drivers of the skew and smile
    • Normal versus lognormal vol, CEV models, shifted lognormal
    • Introduction to stoch vol and SABR


    Introduction to interest rate modelling

    • Single-factor models
    • Mult-factor models and the LMM


    Structured products

    • Callable bonds
    • Embedding options for yield-enhancment: capped FRNs, reverse floaters
    • Corporate liability management


    Interest rate exotics and structured products

    • Digitals and range accruals
    • Target redemption structures
    • CMS spread-linked


    Module 2 - Equity Derivatives, FX, Credit & XVA

    Day 3

     

    Options, Exotics and Structured Products


    Option fundamentals

    • The basic payoff diagrams
    • Cash versus physical settlement
    • Popular option combinations and strategies
    • Volatility - what it is and why it matters


    Option pricing

    • Intuitive drivers of the premium
    • Binomial trees
    • Monte Carlo
    • Black-Scholes


    Option risk-management

    • The delta hedge
    • The fundamental role of gamma
    • Gamma versus theta


    Understanding and trading volatility

    • Defining implied volatility
    • Defining the vol surface, smile and skews
    • Hedging smile and skew risk, risk-reversals and butterflies
    • The role of stochastic vol in understanding smile and skew
    • Quantifying the risk - vanna and volgamma
    • Introduction to local and stochastic vol models


    Exotics and structured products

    • Digitals and range-accruals
    • Barrier options and client applications
    • Static hedging of barrier options
    • Autocallables and accumulators
    • Cliquets and the problem of forward vol


    Day 4

     

    Credit Derivatives


    Mechanics of a CDS contract

    • Defining a credit event
    • CDS setttlement


    Pricing and risk

    • The credit triangle – relating credit spreads to default probability (PD), exposure (EAD) and expected recovery (LGD)
    • Risky discounting
    • Standard contracts, fixed spreads, computing the upfront
    • CS01 and convexity


    Hedging bond positions

    • Constructing the hedge – default risk or spread risk?
    • Trading the cash-CDS basis
    • Drivers of the basis


    CDS indices (iTRAXX and CDX)

    • Mechanics and settlement
    • Intrinsic spread and skew
    • Sub-indices


    Tranching and correlation

    • Synthetic single-tranche CDOs
    • Credit correlation and why it matters
    • Understanding the tranche delta


    Structured credit trading

    • Tranche trading and convexity
    • Nth-to-default baskets


    Day 5

    Counterparty Risk, Funding and XVAs


    Key concepts and metrics of counterparty exposure

    • When exposure is non-static – why derivative are tricky
    • Key metrics of exposure for derivatives: EL, EE, EPE, PFE


    From exposure to Expected Loss

    • Monte carlo simulation and semi-analytical methods
    • Computing EL for some simple positions: IRS, forward FX


    Pricing for default risk

    • The traditional approach versus the CVA approach


    Computing the CVA charge for the most common positions

    • Shortcut calculational tricks
    • Mitigating the exposure on cross-currency swaps


    Wrong-way risk

    • Examples of wrong-way (and right-way) risk
    • Computing the CVA charge with wrong-way risk


    The new CVA capital charge in Basel III


    DVA – adjusting for your own risk

    • DVA for some common positions
    • Is DVA real? Why it remains controversial


    CSAs and collateral

    • The importance of netting
    • CSA key terms
    • The dual role of the CSA – collateral as funding


    Building a funding curve

    • The choice of OIS as a core discount curve
    • What is meant by ‘CSA discounting’
    • The ‘cheapest-to-deliver’ option in collateral posting


    Understanding the Funding Valuation Adjustment (FVA)

    • Adjustment for asymmetric collateral terms
    • Avoiding the trap of double-counting FVA and DVA


    Other XVA adjustments

    The new regulatory world

    • Central clearing
    • Regulatory legislation: Dodd-Frank, EMIR, MiFiD and the rest
    • What can we expect from Basel IV?
  • Our Tailored Learning Offering

    Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company’s exact requirements? If you’d like to do either of these, we can bring this course to your company’s office. You could even save up to 50% on the cost of sending delegates to a public course and dramatically increase your ROI.

    If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.

    We produce learning solutions that are completely unique to your business. We’ll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.

  • We have a combined experience of over 60 years providing learning solutions to the world’s major organisations and are privileged to have contributed to their success. We view our clients as partners and focus on understanding the needs of each organisation we work with to tailor learning solutions to specific requirements.

    We are proud of our record of customer satisfaction. Here is why you should choose us to help you achieve your goals and accelerate your career:

    • Quality – our clients consistently rate our performance ‘excellent’ or ‘outstanding’. Our average overall score awarded to us by our clients is nine out of ten.
    • Track record – we have delivered training solutions for 95% of worlds’ top 100 banks and have trained over 250,000 professionals.
    • Knowledge – our 150 strong team of industry specialist trainers are world leading financial leaders and commentators, ensuring our knowledge base is second to none.
    • Reliability – if we promise it, we deliver it. We have delivered over 20,000 events both in person and online, using simultaneous translation to delegates from over 180 countries.
    • Recognition – we are accredited by the British Accreditation Council and the CPD Certification Service. In an independent review by Feefo we scored 96% on service and 95% on product
This course can be run as an In-house or Tailored Learning programme

Instructor

  • Richard Fedrick

    Biography

    Richard started his career in 1988 in the Derivatives Product Group at Morgan Stanley, which he joined after three years of post-grad research in Theoretical Physics. He spent three years as a rates and FX structurer at Morgan Stanley before moving to a similar role at Deutsche Bank in London. In 1993 Richard joined General Re Financial Products, a newly-formed AAA boutique that soon 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.In 2004, Richard decided to move into the world of consulting and expert training. He trains around the world on all areas of finance with a particular emphasis on capital markets, derivatives and risk-management.Richard has a 1ST Class Degree in Physics from Oxford University.