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Structured Products
This
one-day module offers an introduction to the exciting world of
structured products -- a $100+ billion market. By their very nature,
these instruments are designed to meet the special-situation needs of
investors and issuers; hence they are ever-changing. Participants will
learn investors' and issuers motivations, and the pricing and risk
aspects of the products. We'll illustrate the different classes of
structured products with many current examples including those offered
by CSFB, a leader in the business.
Pre-course requirements: understanding of bond mechanics and pricing, and basics of futures and option valuation.
Interest Rate Derivatives
In
this module participants gain an overview of the range of fixed-income
hedging techniques offered by CSFB to investor and borrower clients.
Beginning with the fundamental measures of interest-rate exposure such
as duration, convexity and the "greeks," we explore the world of swaps,
bond futures and options, FRAs and swaptions, caps and floors, and
more. We'll learn how to immunize a fixed-income portfolio using
interest rate derivatives and how, using these tools, the bank can
offer investor clients a much wider range of protections and
opportunities than would otherwise be available.
Pre-course requirements: understanding of basic bond mechanics and pricing.
Participants in each module will be provided with a package of
materials relating to the subject matter, including
pertinent articles, case studies based on
actual deals, deal memoranda, and sample spreadsheets. Our time together will be divided into
lecture-discussions, hands-on
exercises, and summary reviews. These will give participants a chance to demonstrate
their
understanding of the techniques and client applications, with an emphasis on the risk measurement and management dimensions.
Structured Products
Date
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Topics
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Resources
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Day
One |
Structured Products: Introduction
- Motivation and economics of structured notes
- Examples of CSFB structured products
- Application: Principal-Protected Notes. Why are these so popular, and how are they priced?
- Broad categories: perfomance-enhancement versus income-enhancement instruments
- Pure-play structured products
- Applications:
- Exchange-traded versus OTC products
- Valuation and risk management of the instruments
Equity-Linked Instruments
- Background: equity derivatives
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Measures of risk, including delta and gamma, applied to equity-linked structured products
- Convertible bonds and warrants
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Capital-protected index-linked notes -- and variants
- Case study: Merrill Lynch Equity-Index Linked Note
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Unprotected and protected equity bull notes
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Unprotected and protected equity bear notes
- Application: Alpha transport instruments
- Buffered equity notes
- Hedge fund linked products
- More: leveraged index-driven strategies (with a cap), index outperformance strategies, and volatility arbitrage
Credit-Linked Structured Products
- Structured products linked to loan markets and companies' credit perfomance
- Collateralized debt obligations and credit derivatives
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Credit-linked notes
- Case study: Chase Leveraged Loan Participation Note
Review
| Presentations
structured1.pdf
Case Studies
To be provided
Spreadsheets
To be provided
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Day
Two
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Fixed-Income Structured Products
- Background review of fixed-income derivatives: FRAs, swaps, caps, floors, collars, swaptions
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Measures of risk, including duration and convexity, applied to fixed-income structured products
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Callables and puttables and combinations
- Case study: A Call to Guernsey
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Capped, floored, collared FRNs
Commodity-Linked Structures and More
- Fundamentals of commodity derivatives
- Applications: gold-linked notes, energy-linked notes, currency plays, etc
- Case study: A Capital-Protected Oil Opportunity Note
- Investor motivations and risk aspects
- Catastrophe bonds and other insurance-linked instruments
Review and Conclusion
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Presentations
structured2.pdf
Case Studies
To be provided
Spreadsheets
To be provided
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Interest Rate Derivatives
Date
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Topics
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Resources
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Day
One |
Interest Rate Derivatives: Introduction
- Applications in bond portfolios and structured investment products
- Applications in corporate financing
- Examples: IRD products and applications at CSFB
- The risk management challenge
Interest Rate Risk Measurement
- Bond maturity, yield and price: cash versus derivatives
- Duration
- Convexity
- Immunization
- Compare to VaR approach
- Application: Measuring risk in a mortgage-backed security portfolio
- Repricing tools for analyzing the yield curve
- Risk management tools: mechanics and linkages
- Cash markets
- Forward rate agreements (FRAs)
- Futures
- Swaps
- Case study: Inverse floating-rate notes
Focus: Interest Rate Swaps
- Structures of interest rate and currency swaps
- Basis swaps and more
- Pricing and quotations
- Credit aspects
- An Investor Application: swapping bonds and a bond portfolios
Review
| Presentations
ird1.pdf
Case Studies
To be provided
Spreadsheets
To be provided
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Day
Two
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Managing Rate Risk with Option-Based Products
- Mechanics of fixed-income options
- Over-the-counter
- Exchange-traded
- Futures options
- Option pricing
- Binomial models
- Black-Scholes type models
- Others
- Eurodollar puts and calls
- Bond options, callable bonds, and swaptions
- Case study: Canadian Confectionaries Company
Application: Caps, Floors and Collars
- Mechnics and pricing of caplets and caps/floors
- Application: Building a capped floating-rate note
- Importance of volatilily
- Delta and gamma hedging and the “greeks”
- Risk management of an integrated fixed-income book
Review and Conclusion
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Presentations
ird.pdf
Case Studies
To be provided
Spreadsheets
To be provided
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About the Instructor
Dr. Ian
Giddy,
born in South Africa, has taught finance at NYU, Columbia, Wharton,
Chicago and
in some 40 countries abroad for the past three decades. He was Director
of
International
Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The
author of more than fifty articles on international finance, he has
served
at the International Monetary Fund and the U.S. Treasury and has been a
consultant with numerous corporations and financial institutions in
North and South America, Europe, Asia, the Middle East and Africa. As a
banker and consultant he has been involved in the
growth of the structured finance market in the USA, Europe and Asia. He
is the author
or co-author of The International Money Market, The Handbook
of International Finance, Cases in International Finance,
Global Financial Markets, Asset Securitization in Asia and The
Hudson
River Watertrail Guide. He and his wife are the founders of Cloudbridge, a nature reserve in Costa Rica.
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