Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

• Defining a structured product.
• Classifications of structured products
  • Asset-backed securities
  • Collateralized debt obligations
  • Collateralized mortgage obligations
• The function of the special purpose vehicle.
• Methodologies for pricing structured products.
• Identification of primary risks.
• Accounting treatment 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 interest rates other than LIBOR.
• Extendible and cancellable swaps.
• Embedded swaptions.

Session 3 – Options Contracts

• Fundamentals of options.
• Key terminology.
• Exchanged-traded versus OTC markets.
• Understanding option premiums.
• Confirmation and settlement procedures.
• The role of volatility.
• Pricing an option –
  • The binomial model.
  • Black-Scholes.
  • Alternative methodologies.
• The significance of the yield curve.

Session 4 – Swaps Contracts

• Fundamentals of swaps.
• Definitions of swap types.
• The quality spread differential.
• Interest rate swaps.
• Currency swaps.
• Pricing interest rate swaps.
• Valuation of swaps.
• Model risk and the critical role of pricing feeds.
• Confirmation and settlement processes.
• Counterparty credit risk.
• Collateral and collateral management.

Session 5 – Introduction to Derivatives

• Defining a derivative.
• Concerns surrounding derivatives.
• Core 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 distinctions.
• Market conventions.
• The language of foreign exchange.
• The mechanics of trading foreign exchange.
• Electronic and telephone trading methods.
• Dealing room controls.
• Terminology related to currencies.

Session 7 – Forward Transactions

• Introduction to forward contracts.
• Objectives of forward contracts.
• Pricing forward contracts and the role of LIBOR.
• Documentation of forward contracts.
• Overview of the ISDA framework.
• Confirmation and settlement of forward contracts.

Session 8 – Futures Contracts

• Introduction to futures contracts.
• The role of the futures exchange.
• Characteristics of futures contracts.
• Their function in trading.
• Pricing futures contracts.
• Hedging strategies using futures.
• 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 in an equity swap.
• Total return swaps and other credit derivatives.

Session 10 – Practical Challenges

• 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.
• Introduction to collateralized 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 modeling techniques.
• The impact of international accounting standards, IAS 39, and IFRS 7.
• Asset recognition and derecognition.