Understanding Swaps Markets

Swaps are the most actively traded derivative product. This course covers those swap products with an interest rate component including interest rate swaps, overnight index swaps, asset swaps and currency swaps.

Course Outcomes

• Identify the main features of interest rate and overnight index swaps.
• Calculate swap cash flow settlement amounts.
• Interpret the main characteristics of the swap market.
• Interpret a swap quotation and explain the relevance of a swap spread.
• Calculate the value of an interest rate swap.
• Calculate the market risk of an interest rate swap.
• Understand the intuition of swap credit risk.
• Explain how swaps could be used to manage a firm’s liquidity and the interest rate risk arising from a bond portfolio.

Trading the Yield Curve with Cash Market Securities

• Fixed income securities & interest rates.
• Monetary policy & the yield curve.
• Interest rate risk.
• Trading views on the yield curve with cash instruments.
• Financial fixed income trades.
• Bonds with embedded options.
• Inflation-indexed bonds.
• Sovereign credit risk & sovereign ratings.
• Fixed income market practice & regulation.

Interest Rate Derivatives

• Short-term interest rate (STIR) futures
• Bond futures
• Interest rate swaps & swap futures
• Interest rate options
• Inflation derivatives
• Counterparty risk in derivatives
• Derivative market practice & regulation

Credit Trading

• Credit risk & credit spreads
• Default probability & expected recovery
• Credit analysis & credit ratings
• Securitisation
• Credit default swaps & credit default swaptions
• Credit trading & hedging with single name CDS
• Credit trading with index CDS
• Credit trading with CDS index tranches
• CDS pricing & revaluation