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 special purpose vehicles
• Methodologies for pricing structured products
• Identifying key risk factors
• Accounting treatments for structured products
• Approaches to pricing a structured product

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
• Key terminology
• Exchange-traded versus Over-the-Counter (OTC)
• Understanding option premiums
• Confirmation and settlement procedures
• The concept of volatility
• Option pricing techniques
  • Binomial model
  • Black-Scholes model
  • Alternative approaches
• The significance of the yield curve

Session 4 – Swaps Contracts

• Overview of swaps
• Definitions of swap types
• Quality Spread Differential (QSD)
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Valuing swaps
• Model risk and the necessity of accurate pricing feeds
• Confirmation and settlement processes
• Counterparty credit risk
• Collateral requirements and management

Session 5 – Introduction to Derivatives

• Defining a derivative
• Reasons for concern regarding derivatives
• Fundamental concepts
• Arbitrage and the original purpose of derivatives – the mutual coincidence of wants
• Advantages and applications of derivatives
• Distinctions between hedging and trading

Session 6 – Foreign Exchange

• Banking book versus trading book
• Market conventions
• Terminology of foreign exchange
• The foreign exchange trading process
• Electronic and telephone trading platforms
• 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 critical role of LIBOR
• Documentation of forward contracts
• Overview of 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
• Their role in trading strategies
• Pricing futures contracts
• Utilising futures for hedging
• The importance of margin accounting
• Confirmation and settlement

Session 9: Equity Swaps

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

Session 10 – Practical Failures and Case Studies

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

Session 11 – Introduction to Advanced Topics

• Managing interest rate risk
• Overview of collateralised instruments
• Counterparty credit risk and derivatives
• Legal risk and 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 modelling techniques
• The impact of international accounting standards, IAS 39 and IFRS 7
• Asset recognition and derecognition