Advanced Excel™ Workshop 1 - Yield Curve Estimation and Principal Components Analysis

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Yield Curve Estimation

• Yield Curves, Par Curves and Zero Coupon Curves
• Estimation Techniques
  • Nelson-Siegel
  • Bootstrapping
  • Cubic Spline
• Computer Workshop (Excel/VB): Participants Program and Test Yield Curve Estimation Routines in Excel/VB

Term Structure Models

• Programming and Implementing Term Structure Models
  • BDT, Hull-White, BGM
• Computer Workshop

12.00 - 13.00 Lunch

13.00 - 16.30 Analyzing Swaps and Interest Rate Options

• Pricing Standards Swaps
• Pricing Caps, Floors and Swaptions Using Analytical and Numerical Approaches
• Computer Workshop: Participants Analyse Selected Swap and IRO Structures Using BDT and other Models

Pricing Complex Instruments

• Pricing Complex Interest Rate Products
  • Capped Floaters, Leveraged Capped Floaters, Cancellation Swaps, Constant Maturity Swaps etc.
  • "Exotic" structures (barrier, digital, lookback)
• Computer Workshop: Participants Price Selected Complex Interest Rate Products

Day Two

09.00 - 12.00 GARCH Volatility Modelling

• General Introduction to GARCH Modelling
• Estimating Volatility Using MA, EWMA and GARCH(1,1)
• Estimating VaR and "Tail Risk" Using GARCH
• Combining GARCH with EVT
• Computer Workshop: Fit MA, EWMA and GARCH(1,1) Models to Stock Return and Interest Rate Series and Calculate Value-at-Risk

Simple Monte Carlo Simulation

• Sampling from Normal and Log-Normal Distributions
• Simulating a Stochastic Differential Equation
• Calculating VaR for Portfolio
• Computer Workshop: Participants Program Simple Monte Carlo Application

12.00 - 13.00 Lunch

13.00 - 16.30 Principal Components Analysis

• Common Factors Affecting Bond Returns
• Overview of Multi-Factor Interest Rate Risk Models
• The Factor Model
  • Eigenvalues, Eigenvectors and the Yield Curve
  • Calculating and Interpreting Factor Loadings
• Using the Factor Model to Calculate VaR
• Factor Immunization for Hedging Yield Curve Fluctuations
• Monte Carlo Simulation Using PCA
• Computer Workshop: Participants use PCA to Estimate Risk Factors and Construct Optimal, Factor-Immunized Portfolios

Evaluation and Termination of the Workshop