Swaps and Interest Rate Options - Mechanics, Pricing and Applications
Duration:
2 days
2 days
Location:
Prague, Mövenpick Hotel
Prague, Mövenpick Hotel
- Introduction to Swaps and Interest Rate Options
- "Bootstrapping" and Swap Pricing
- Valuation of Generic and Non-Generic Swaps
- Using Swaps in Trading and Risk Management
- Using Caps, Floors and Swaptions
- Financial Engineering with Swaps and Options
The purpose of this seminar is to give you a good understanding of the pricing and applications of generic swaps and more advanced swaps and of swap-related option structures.
We start with a general introduction to swaps and their “mechanics”. We explain the basics of swaps and swap terminology and we demonstrate how swap payments are calculated under different conventions.
We then explain and demonstrate how “generic” swaps are priced using market data and zero coupon analysis. We show how swap curves can be “bootstrapped” and how swaps can be valued using the resulting discount factors. We explain in detail how the instruments are valued for mark-to-market and risk management purposes, illustrated by lots of examples.
Having gained a good understanding of fundamental swap pricing, we then turn to examine a number of more advanced swap structures and their related option instruments. We analyze structures such as “Amortizing”, “Accreting”, ”Forward Starting”, “Arrears Reset”, “Constant Maturity” and “Differential” swaps. We also look at structures with embedded option features such as “Cancellation Swaps”.
Furthermore, we introduce a number of swap-related options, including Caps, Floors, and Swaptions. We explain the mechanics of these instruments and give an overview of pricing methods and models.
We then look at the applications of swaps and related interest rate options. We demonstrate how these instruments are used for creating synthetic cash flows (asset and liability swaps) and structured products, and we explain how the instruments are used for “trading” purposes and for managing interest rate risk, foreign exchange risk, prepayment risk and other types of risk.
Finally, we explain how swaps and interest options are used as building blocks in “financial engineering” to create structured products such as “reverse floaters”, “bear notes”, “CMS floaters” etc.
We start with a general introduction to swaps and their “mechanics”. We explain the basics of swaps and swap terminology and we demonstrate how swap payments are calculated under different conventions.
We then explain and demonstrate how “generic” swaps are priced using market data and zero coupon analysis. We show how swap curves can be “bootstrapped” and how swaps can be valued using the resulting discount factors. We explain in detail how the instruments are valued for mark-to-market and risk management purposes, illustrated by lots of examples.
Having gained a good understanding of fundamental swap pricing, we then turn to examine a number of more advanced swap structures and their related option instruments. We analyze structures such as “Amortizing”, “Accreting”, ”Forward Starting”, “Arrears Reset”, “Constant Maturity” and “Differential” swaps. We also look at structures with embedded option features such as “Cancellation Swaps”.
Furthermore, we introduce a number of swap-related options, including Caps, Floors, and Swaptions. We explain the mechanics of these instruments and give an overview of pricing methods and models.
We then look at the applications of swaps and related interest rate options. We demonstrate how these instruments are used for creating synthetic cash flows (asset and liability swaps) and structured products, and we explain how the instruments are used for “trading” purposes and for managing interest rate risk, foreign exchange risk, prepayment risk and other types of risk.
Finally, we explain how swaps and interest options are used as building blocks in “financial engineering” to create structured products such as “reverse floaters”, “bear notes”, “CMS floaters” etc.
13.00 - 16.30 Pricing Currency Swaps
- Overview of Currency Swap Structures
- Decomposing Currency Swap Structures into Building Blocks
- Pricing Libor Basis Swaps
- Pricing Currency Swaps as Series of Long-dated Forward Contracts
- Zero Coupon Approach to Pricing Currency Swaps
- Exercises
Analysis of Non-Generic Swaps
- Amortizing
- Accreting Swaps
- Rollercoaster Swaps
- Forward Starting Swaps
- Arrears Reset Swaps
- Small Exercise
Day Two
09.00 - 09.15 Recap
09.15 - 12.00 Analysis of Non-Generic Swaps (continued)
- Constant Maturity Swaps
- Differential Swaps
- Overnight Index Swaps
- Deferred Coupon Swaps
- Total return Swap
- Small Exercise
Interest Rate Options
- Interest Rate Guarantees, Caps, Floors and Collars
- Mechanics
- Pricing (overview)
- Swaptions
- Mechanics
- Pricing (overview)
- Small Exercise
12.00 - 13.00 Lunch
13.00 - 16.00 Applications of Swaps and Interest rate Options
- Creating Synthetic Cash Flows
- Asset swaps
- Liability swaps
- Arbitrage with Swaps
- Case: Tax arbitrage
- Portfolio Management with Swaps
- Using swaps in duration management
- Swap overlay strategies
- Using Caps, Floors and Swaptions
- Hedging loan with swap, cap or collar
- Call monetisation with swaptions
- Financial Engineering with Swaps and Interest rate Options
- Exercises
Evaluation and Termination of the Seminar
