Learning Outcomes

  • Forwards and Futures
  • Swaps
  • Options Contract
  • Derivatives use in Capital Markets
  • Credit Derivatives
  • Trading Simulation


The course will explore the main markets for futures and the extra consideration versus forwards including exchanges, clearing houses & margin calculation methods discussed and illustrated with case studies. Taking a natural progression from futures contracts, we will move into discussion of the options contract. To broaden your knowledge of the use of derivatives in capital markets, linking ECM and DCM discussions, you will examine how derivatives can enhance the product offered to clients of a business. Many products and solutions will be discussed including treasury locks and interest rate collars. You will gain a broader understanding of credit derivative products and features. A case study will be used to fully understand the logistics in trading single name CDS including all risks and considerations. An exciting end to the course will be the trading simulation. You will be part of a team tasked with creating a market, both spot and derivative, in a defined asset. Teams must maximise profit whilst monitoring all of their risks (using the models used earlier). You will need to trade within prescribed risk limits on all of the Greeks and decide on the best strategy to ensure you are monitoring counterparty risk as well. This exercise will allow you to show your trading skills as well as the ability to read the market (volume, prices and volatility) while working under pressure as part of a team.

Program Overview

Forwards and Futures
  • Calculate the forward interest rate implied by a given Eurodollar or Euribor futures contract price
  • Calculate the initial margin, profit and loss based on daily marking to market, and variation margin on a Eurodollar or Euribor futures position given the necessary margin levels
  • Calculate the settlement amount in a bond futures contract, given the futures settlement price and the conversion factor of the delivered bond
  • Understand how a bond futures price is related to the forward prices of bonds that are deliverable into the contract
  • Understand how to identify the bond that is cheapest to deliver into a bond futures contract and why this matters
  • Understand how bond futures are used to hedge interest rate risk
  • Swap Valuation: LIBOR and OIS Discounting
  • Understand why swap rates can be interpreted as LIBOR-credit- quality par yields when swaps are priced and re-valued under LIBOR discounting
  • Calculate swap discount factors from quoted swap rates under LIBOR discounting
  • Calculate projected forward LIBORs under LIBOR discounting
  • Calculate the mark-to-market value of a swap position under LIBOR discounting
  • Understand why LIBOR discounting is not appropriate for derivatives positions that are strongly collateralized, whether bilaterally or through central clearing, and why OIS discounting is used for collateralized swaps
  • Calculate swap discount factors from OIS rates under OIS discounting
  • Calculate projected forward LIBORs under OIS discounting
  • Calculate the mark-to-market value of a swap position under OIS discounting
  • Know the payoffs to long and short positions in call and put options
  • Understand the implications of put-call parity
  • Calculate breakeven prices for long and short positions in call and put options
  • Understand how moneyness, volatility and time to expiry affect option values
  • Know the definitions of the option ‘Greeks’, namely
    • Delta
    • Gamma
    • Vega
    • Theta
    • Rho
  • Understand the role of delta in hedging options
  • Understand the relationship between option prices and expected delta hedging costs
  • Understand how the option ‘Greeks’ is affected by changes in the degree of moneyness of the option, its time of expiry and the volatility of the underlying asset
  • Understand how the option ‘Greeks’ can be used to explain the sources of profit and loss when using options to trade views on volatility
Credit derivatives
  • Know the counterparties and possible cash flows in a credit default swap (CDS)
  • Understand how buying or selling protection in a CDS creates exposure to credit risk
  • Know the main contractual features of CDS traded under standard documentation, including standard maturity and coupon dates, fixed coupons, and full first coupon
  • Know the definition of par spread for a CDS
  • Understand why an upfront payment is exchanged between the protection seller and the protection buyer in a CDS for which the par spread differs from the contractually fixed coupon
  • Know the credit events traded in Standard North American Corporate (SNAC), European, Standard Emerging Market (STEM) and sovereign CDS

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