Investment Banking: Introduction to Structured Products Training Course

Session 1 – Structured Products

• Defining structured products
• 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 treatments 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 indexed to interest rates other than LIBOR
• Extendible and cancellable swaps
• Embedded swaptions

Session 3 – Options Contracts

• Overview of options
• Essential options terminology
• Exchange-traded versus Over-the-Counter (OTC) instruments
• Understanding option premiums
• Confirmation and settlement procedures
• The concept of volatility
• Option pricing models
  • The binomial model
  • The Black-Scholes model
  • Alternative methodologies
• The critical role of the yield curve

Session 4 – Swaps Contracts

• Overview of swaps
• Defining swaps
• Quality spread differential
• Interest rate swaps
• Currency swaps
• Pricing interest rate swaps
• Valuation of swaps
• Model risk and the necessity of reliable pricing feeds
• Confirmation and settlement processes
• Counterparty credit risk
• Collateral and collateral management

Session 5 – Introduction to Derivatives

• Defining a derivative
• Concerns surrounding derivatives
• Core concepts
• Arbitrage and the foundational purpose of derivatives – the 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 and telephone trading
• Dealing room controls
• Currency terms

Session 7 – Forward Transactions

• Overview of forward contracts
• Objectives of forward contracts
• Pricing forward contracts and the significance of LIBOR
• Documentation of forward contracts
• Overview of the ISDA agreement
• Confirming and settling forward contracts

Session 8 – Futures Contracts

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

Session 9: Equity Swaps

• Fund management objectives
• 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 and Case Studies

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

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