Yield Curve Construction, Modelling and Applications Workshop

Agenda Program
divider graphic
Prague, NH Hotel Prague
divider graphic
New Paradigms in Yield Curve Construction
Constructing and Using Bond Curves
Constructing and Using Libor Curves
OIS Discounting
Single and Multi-Curve Pricing of Swaps
The Effect of Collateral on Swap Pricing
Stochastic Yield Curve Models
The Modern Libor Market Model
The purpose of this intensive hands-on workshop is to give you a good and practical understanding of techniques for constructing yield curves and for the applications of yield curves in pricing, trading and risk management.

We start with a discussion of "the new paradigm" in yield curve modelling, reflecting the fact that post-crisis most banks have begun to use different curves for discounting collateralized and non-collateralized transactions. We explain the concept of "OIS discounting" and discuss the differences between Libor curves and OIS curves.

We then explain and demonstrate how bond yield curves can be estimated using the Nelson-Siegel-Svensson method (used by the ECB and the Bundesbank). We also look at other methods such as cubic splining, and we explain how credit spreads curves are constructed.

In the afternoon of day one, we give a thorough explanation of how Libor curves can be constructed and applied in a multi-curve framework, showing how cash flow projections and the choice of discount rate depends on i.a. the swap tenor and upon whether the swap is collateralized or not.

On day two, we turn to look at stochastic yield curve models and their applications in interest option pricing. We present, explain and implement the BDT, Hull-White and the Modern Libor Market Models, and we explain and demonstrate how they are used to price caps, floors swaptions and other types of interest rate options. We also explain how to calculate risk analytics for hedging purposes and how yield curves can be used as a tool in advanced interest rate risk management.

Throughout the workshop, you will have the opportunity to work hands-on with the techniques and models on real-life market data.
The course will be highly practical and hands-on. Participants are required to bring a notebook with MS Excel. Participants will use models and exercises to outline and develop the techniques and methods.
Microsoft®, Excel®, Visual Basic® and VBA® are registered trade marks of MICROSOFT Corporation.

Program of the seminar: Yield Curve Construction, Modelling and Applications Workshop

The seminar timetable follows Central European Time (CET).

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 Yield Curve Construction - Introduction and Overview

  • Yield Curves and their Applications in Finance
  • Types of Yield Curves
  • After the Crisis: New Paradigms in Yield Curve Construction

Constructing and Using Bond Curves

  • Overview of Bond Markets and their Similarities/Differences
  • Distinction of Zero-Coupon Yield Curve from Standard Yield curve
  • Relation between Discount Function and Spot Yield
  • Methodology of Relative Risk-Free Spot Yield Curve and Credit Spread Construction
  • Fitting the Curve
    • Bond input data and cash flow generation
    • Fitting and smoothing the curve using the Nelson-Siegel-Svensson model
    • Fitting with (cubic) spline models
  • Credit Spread Construction: Single-factor vs. Two factor spread representation
    • Using the fitted curve(s) to price bonds - examples
  • Computer Workshop:
        Participants Fit Risk-Free Spot Yield Curve and Construct Credit Curves. Curves Are Used to Price Bonds

12.00 - 13.00 Lunch

13.00 - 16.30 Constructing and Using Libor Curves

  • Construction Swap Curves in a Single-Curve Environment
    • “Bootstrapping” the curve using convexity-adjusted deposit futures prices FRA rates and par swap rates
    • Smoothing and fitting the curve using “cubic splining” and the Nelson-Siegel-Svensson model
  • Market Dynamics that Lead to OIS Discounting
  • The Relationship between Libor, OIS and the Swap Curve
  • Bootstrapping the Cuvce under OIS Discounting
  • Pricing Standard and Non-Generic Swaps
  • Standard swaps
    • Amortizing, forward starting, arrears reset,...
  • After the Crisis: From single to a Multi-Curve Paradigm
    • Libor vs. OIS curves
    • Different curves for different tenors (3M vs. 6M Libor etc.)
    • Different curves for collateralized and non-collateralized swaps
  • Computer Workshop:
        Participants Construct OIS/Libor Curves and Use These for Pricing of Swaps.

09.00 - 09.15 Recap

09.15 - 12.00 Stochastic Yield Curve Models

  • Introduction to Stochastic Yield Curve Models
  • Equilibrium Models (quick overview)
  • No-arbitrage Models (Overview)
    • General form
    • Deriving the model from zero curve and volatility structure
  • The Hull-White Model
    • A general tree-building procedure
  • The Swap Market Model
  • The Libor Market (BGM) Model
  • Using Monte Carlo Simulation with Interest Rate Models
  • Single-Curve Pricing & Hedging Interest-Rate Derivatives – Examples
  • From Single to Double-Curve Paradigm
  • Double-Curve Framework, No Arbitrage and Basis Adjustment
    • General assumptions
    • Pricing procedure
    • No-arbitrage revisited and basis adjustment
  • The Double Curve Libor Market Model
  • Computer Workshop:
        Participants Program and Test one or more Stochastic Yield Curve Models

12.00 - 13.00 Lunch

13.00 - 16.30 Pricing and Analyzing Instruments using Yield Curves and Models

  • Pricing Caps, Floors and Swaptions
  • Risk Analysis
    • Estimating Delta, Gamma, Vega etc. for Interest Rate Options
  • Pricing Constant Maturity Swaps
  • Analyzing Instruments with Embedded Options
    • Callable and putable bonds
    • Cancellation swaps
    • Extendable swaps
  • Risk Management
    • Calculating delta vectors
    • Calculating key rate durations
    • Calculation hedge ratios using stochastic models
  • Computer Workshop:
        Participants Analyse Selected Interest Rate Option Structures Using the BDT Model

Evaluation and Termination of the Workshop

Training catalogue in PDF
arrow-up icon