The Fundamentals of Interest Rate Risk and Its Derivatives

The Fundamentals of Interest Rate Risk and Derivatives

This training aims to deepen the understanding of key mechanisms and strategies for managing interest rate risk. The first part of the program is dedicated to defining interest rate risk, its challenges, and the main players involved in its management.

Interest Rate Swaps

The program covers interest rate swaps in detail, explaining their general characteristics, market operations, key players, and structural principles of these instruments. A section is specifically dedicated to swap pricing and valuation, providing a rigorous and applied approach.

Swap Yield Curve Analysis

An in-depth analysis of the swap yield curve will be conducted, including the study of the zero-coupon curve and the forward rate curve. A practical application will allow participants to calculate forward rates from the zero-coupon curve, reinforcing their technical understanding of these concepts.

Futures, Forwards, and Swaps

The training also covers hedging instruments such as futures, forwards, and swaps, highlighting their definitions, differences, specific uses, and valuation methods.

Swaptions

A dedicated section on swaptions will help participants understand their mechanics, usage, and the different pricing methods used for these complex instruments.

Theoretical and Practical Approach

Each module combines theory with practical case studies to ensure that participants acquire not only a deep understanding of concepts but also the ability to apply them in professional settings.

Training Objectives

• Understand interest rate risk and the involved stakeholders.
• Discover the role and operation of interest rate hedging instruments.
• Know the principles and functioning of a swap and an interest rate option.
• Learn to value an interest rate swap and an interest rate option.
• Understand the workings of a swaption.

Target Audience

• Fund managers
• Portfolio managers
• Wealth managers
• Management assistants
• Financial analysts
• Bank treasurers
• Corporate treasurers
• Financial engineers

Training Duration

• 2 days (14 hours)

Training Program

I. Interest Rate Risk

• Definition
• Challenges
• Key Market Participants

II. Swaps

• Overview
• Market and Participants
• Recent Regulatory Developments
• Principles and Structure

Case Study:

Analysis of the different uses and benefits of a swap

III. The Interest Rate Swap Curve

• Zero-coupon curve
• Forward rate curve
• Construction of the yield curve: the Bootstrapping method

Case Study:

Calculating forward rates from the zero-coupon curve

IV. Pricing and Valuation of a Swap

• Difference between pricing and valuation
• The principle of no-arbitrage opportunity

Case Study:

Pricing and valuation of an interest rate and currency swap

V. Futures, Forwards, and Options

• Futures and forward contracts
• Uses
• Pricing of a future and a forward contract

Case Study:

Examples of futures/forward contract applications

VI. Options

• Definition, role, and use
• The Greeks
• Option pricing: binomial tree, Black-Scholes, Monte Carlo simulation

Case Study:

Example of hedging with an option

VII. Swaptions

• Definition of a swaption
• Role
• Use

Case Study:

Example of hedging with a swaption