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
• Methodologies for pricing structured products
• Identification of primary risks
• Accounting treatment for structured products
• Detailed pricing mechanisms for structured products

Session 2: Interest Rate Structures

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

Session 3 – Options Contracts

• Overview of options
• Key options terminology
• Distinction between traded and over-the-counter (OTC) markets
• Understanding option premiums
• Confirmation and settlement procedures
• The role of volatility
• Option pricing models
  • Binomial model
  • Black-Scholes
  • Alternative methodologies
• The significance of the yield curve

Session 4 – Swaps Contracts

• Overview of swaps
• Definition of swaps
• Quality spread differential
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Valuation of swaps
• Model risk and the critical need for accurate pricing feeds
• Confirmation and settlement
• Counterparty credit risk
• Collateral and collateral management

Session 5 – Introduction to Derivatives

• Definition of a derivative
• Common concerns surrounding 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 and conditions

Session 7 – Forward Transactions

• Overview of forward contracts
• Purpose of forward contracts
• Pricing forward contracts and the relevance 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
• Role in trading
• Pricing futures contracts
• Hedging with futures
• Importance of margin accounting
• Confirmation and settlement

Session 9: Equity Swaps

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

Session 10 – What Goes Wrong in Practice

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

Session 11 – Introduction to Advanced Topics

• Management of 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 (LGD) and Probability of Default (PD)
• Stress testing and liquidity risk
• Scenario modeling techniques
• Impact of international accounting standards, specifically IAS 39 and IFRS 7
• Asset recognition and derecognition