Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

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

Session 2: Interest Rate Structures

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

Session 3 – Options Contracts

• Fundamental concepts of options
• Key terminology for options
• Traded versus Over-the-Counter (OTC)
• Option premium structures
• Confirmation and settlement procedures
• Volatility metrics
• Option pricing models –
  • Binomial model
  • Black-Scholes model
  • Alternative methodologies
• Significance of the yield curve

Session 4 – Swaps Contracts

• Fundamental concepts of swaps
• Definitions and types of swaps
• Quality Spread Differential (QSD)
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Swap valuation techniques
• Model risk and the critical role of pricing feeds
• Confirmation and settlement processes
• Counterparty credit risk
• Collateral and collateral management strategies

Session 5 – Introduction to Derivatives

• Definition of a derivative
• Concerns surrounding derivatives
• Core concepts and principles
• Arbitrage and the original purpose of derivatives – achieving mutual coincidence of wants
• Benefits 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 versus telephone trading
• Trading floor controls
• Currency terminology

Session 7 – Forward Transactions

• Introduction to forward contracts
• Objectives of forward contracts
• Pricing forward contracts and the significance of LIBOR
• Documentation of forward contracts
• Introduction to the ISDA framework
• Confirming and settling forward contracts

Session 8 – Futures Contracts

• Introduction to futures contracts
• The role of the futures exchange
• Characteristics of futures contracts
• Function in trading activities
• Pricing futures contracts
• Hedging with futures
• Importance of margin accounting
• Confirmation and settlement

Session 9: Equity Swaps

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

Session 10 – Practical Failures in Derivatives

• Scenario modeling and derivatives
• Bankers Trust case study
• Barings case study
• Allfirst case study
• Long-Term Capital Management (LTCM) case study
• Enron case study

Session 11 – Introduction to Advanced Topics

• Management of interest rate risk
• Introduction to 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, IAS 39, and IFRS 7
• Asset recognition and derecognition