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 special purpose vehicles
• Methodologies for pricing structured products
• Identification of primary risks
• Accounting treatments for structured products
• Approaches to valuing structured products

Session 2: Interest Rate Structures

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

Session 3 – Options Contracts

• Basics of options
• Standard options terminology
• Exchange-traded versus Over-the-Counter (OTC) options
• Understanding option premiums
• Confirmation and settlement processes
• The role of volatility
• Option valuation techniques –
  • Binomial model
  • Black-Scholes model
  • Alternative approaches
• The significance of the yield curve

Session 4 – Swaps Contracts

• Fundamentals of swaps
• Definitions of swap types
• Quality Spread Differential (QSD)
• Interest rate swaps
• Currency swaps
• Valuation of interest rate swaps
• Swap valuation methods
• Model risk and the necessity of reliable pricing feeds
• Confirmation and settlement procedures
• Counterparty credit risk
• Collateral requirements and management

Session 5 – Introduction to Derivatives

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

Session 6 – Foreign Exchange

• Distinction between banking book and trading book
• Market conventions
• Terminology in foreign exchange
• The foreign exchange trading process
• Electronic versus telephone trading
• Controls within the dealing room
• Specific currency terms

Session 7 – Forward Transactions

• Overview of forward contracts
• Objectives of forward contracts
• Pricing forward contracts and the critical role of LIBOR
• Documentation of forward contracts
• Overview of the ISDA framework
• Confirming and settling forward contracts

Session 8 – Futures Contracts

• Overview of futures contracts
• The role of the futures exchange
• Characteristics of futures contracts
• Their function in trading
• Pricing futures contracts
• Utilizing futures for hedging
• The importance of margin accounting
• Confirmation and settlement

Session 9: Equity Swaps

• Objectives in fund management
• Application of swaps with equity price indices
• Illustration of cash flows in an equity swap
• Total return swaps and other credit derivatives

Session 10 – Practical Challenges in Structured Products

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

Session 11 – Introduction to Advanced Topics

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