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
• Approaches to pricing structured products

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 versus Over-the-Counter (OTC) markets
• Understanding option premiums
• Confirmation and settlement processes
• The role of volatility
• Option pricing techniques –
  • Binomial model
  • Black-Scholes model
  • Alternative methodologies
• The significance of the yield curve

Session 4 – Swaps contracts

• Overview of swaps
• Definitions of swap types
• Quality spread differential
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Swap valuation methods
• Model risk and the importance of pricing feeds
• Confirmation and settlement procedures
• Counterparty credit risk
• Collateral requirements and management

Session 5 – Introduction to Derivatives

• Defining derivatives
• Reasons for concerns surrounding derivatives
• Fundamental concepts
• Arbitrage and the original purpose of derivatives – the mutual coincidence of wants
• Benefits and applications of derivatives
• Hedging and trading strategies

Session 6 – Foreign Exchange

• Banking book versus trading book
• Market conventions
• Terminology in foreign exchange
• The foreign exchange trading process
• Electronic and telephone trading platforms
• Dealing room controls
• Standard currency terms

Session 7 – Forward Transactions

• Overview of forward contracts
• Objectives of forward contracts
• Pricing forward contracts and the role of LIBOR
• Documentation of forward contracts
• Overview of ISDA
• Confirming and settling forward contracts

Session 8 – Futures Contracts

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

Session 9: Equity Swaps

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

Session 10 – What goes wrong in practice

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

Session 11 – Introduction to Advanced Topics

• Management of 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
• Loss Given Default and Probability of Default
• Stress testing and liquidity risk
• Scenario modeling techniques
• The impact of international accounting standards, specifically IAS 39 and IFRS 7
• Asset recognition and derecognition principles