- What is interest?
- What is interest compensation for?
- How to determine interest rates from risk-free to high-risk

- Benchmark rates
- The use of central bank 'risk-free' rates
- IBOR benchmarks and future reference rates
- How do central banks control the interest rate environment?

- Interest rate maths
- Calculating interest cash flows
- What conventions does each currency use?
- Dealing with simple and compound interest

- Using interest rates to present value future cash flows
- Which rate do we choose and why does it matter?

*Interest rate calculations**Discounting and the choice of discount rate*

*Exercises:*

- The role of debt
- Why and how do companies and governments borrow money?
- Debt versus equity - the corporate financing choice
- Issuing debt instruments - the role of the Debt Capital Markets division in a bank
- Who participates in the debt markets and what is their motivation?

- Borrowing short-term debt - the Money Markets
- Understanding the conventions and pricing of money market instruments

- Borrowing long-term debt - Bonds
- How do bonds differ from money market products?
- Introduction to coupon, price and yield - the way we measure bonds
- The relationship between price and yield
- How to we measure the risk of a bond investment?

- Financing using bonds - the Repo market
- Using Repos to fund a bond investment
- Borrowing bonds using Repos

- Creating a yield curve
- How do we define a yield curve?
- What governs its shape and what are the consequences of difference shapes?

*Bond pricing**Repo calculations and forward bond pricing*

*Exercises:*

- From cash markets to derivatives - what changes?
- The concept of a forward interest rate
- Why do we need forward rates? Who uses them?
- How might we develop a pricing approach for forward rates?

- Derivative products relating to forward rates
- Description of FRAs and Futures
- Look at the details of both and contrast differences
- Understanding the convexity difference between FRAs and Futures

- Interest Rate Swaps - switching fixed interest for floating
- Who uses interest rate swaps and why?
- Creating synthetic assets using interest rate swaps
- Bank asset and liability hedging using tenor basis swaps

- Measuring the risk of interest rate derivatives
- Managing a derivatives portfolio
- Defining and quantifying your risk
- The delta ladder - the risk position for a derivatives trader

*FRA settlement calculations**Interest rate swap applications*

*Exercises:*

- What are the types of options that exist in the interest rate world?
- Caps, floors and swaptions - how do they each work?
- Understanding the exercise decision
- Who uses interest rate options and why?

- Developing a pricing approach for interest rate options
- Using the standard Black-Scholes approach - what adjustments do we need to make?
- Understanding the interest rate volatility surface and why it matters

- Hedging interest rate options
- What risk measures do interest rate option traders use?
- How do you risk manage an option portfolio?

- Introduction to more complex option types
- Bermudan options - the right to switch the decision date
- Spread options - taking a position on yield curve shape
- Digital options - binary outcomes
- CMS swaps - not really options, but option-like

*Option pricing**Simple option risk management*

*Exercises:*

- The world of interest rate structured products?
- Who invests in structured products and why?
- What are the driving forces behind the popularity of certain interest rate investment ideas?

- Simple interest rate structured products
- Capped FRNs, Callable Bonds, Reverse FRNs
- How do the above work and what is the investment idea?

- More complex products
- Range accruals, CMS-linked notes, Autocallables, TARNs
- How do these products work and why are they so popular?

*Analysis of common structured products**Callable range accruals*

*Exercises:*

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