Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

• Definition of a structured product
• Categories of structured products
  • Asset-backed securities
  • Collateralized debt obligations
  • Collateralized mortgage obligations
• The function of the special purpose vehicle
• Methods for pricing structured products
• Identification of key risks
• Accounting treatment for structured products
• Techniques for pricing a structured product

Session 2: Interest Rate Structures

• Embedded options and swaps
• Reverse floaters
• Leveraged swap-linked notes
• Bonds tied to interest rates other than LIBOR
• Extendible and cancellable swaps
• Embedded swaptions

Session 3 – Options Contracts

• Overview of options
• Key options terminology
• Exchange-traded versus Over-the-Counter (OTC)
• Option premiums
• Confirmation and settlement processes
• Volatility
• Pricing an option –
  • Binomial model
  • Black-Scholes model
  • Alternative methodologies
• The significance of the yield curve

Session 4 – Swaps Contracts

• Overview of swaps
• Definitions of swap types
• Quality spread differential (QSD)
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Swap valuations
• Model risk and the critical role of pricing feeds
• Confirmation and settlement
• Counterparty credit risk
• Collateral and collateral management

Session 5 – Introduction to Derivatives

• Definition of a derivative
• Reasons for concern regarding derivatives
• Fundamental concepts
• Arbitrage and the original purpose of derivatives – the mutual coincidence of wants
• Advantages and applications of derivatives
• Hedging and trading strategies

Session 6 – Foreign Exchange

• Banking book versus trading book
• Market conventions
• Foreign exchange terminology
• The foreign exchange trading process
• Electronic and telephone trading
• Dealing room controls
• Currency terms

Session 7 – Forward Transactions

• Overview of forward contracts
• Purpose of forward contracts
• Pricing forward contracts and the importance of LIBOR
• Documentation of forward contracts
• Introduction to the ISDA
• Confirming and settling forward contracts

Session 8 – Futures Contracts

• Overview of futures contracts
• The role of the futures exchange
• Characteristics of futures contracts
• Their role in trading
• Pricing a futures contract
• Hedging with futures
• The significance of margin accounting
• Confirmation and settlement

Session 9: Equity Swaps

• Fund management objectives
• Utilizing a swap with an equity price index
• Example of cash flows in an equity swap
• Total return swaps and other credit derivatives

Session 10 – Practical Challenges

• Scenario modeling and derivatives
• Bankers Trust
• Barings
• Allfirst
• LTCM
• Enron

Session 11 – Introduction to Advanced Topics

• Managing interest rate risk
• Introduction to collateralized instruments
• Counterparty credit risk and derivatives
• Legal risk and derivatives
• Value at Risk (VaR) and Exposure at Default (EAD)
• Loss Given Default (LGD) and Probability of Default (PD)
• Stress testing and liquidity risk
• Scenario modeling
• The impact of international accounting standards, IAS 39, and IFRS 7
• Asset recognition and derecognition