Programme

Day 1:  London 5 December /New York 13 December 2012

09:00 Registration and coffee

09:30 Basic fixed income instruments

  • Basics: discount factors, FRAs, swaps, and other delta products
  • Curve stripping, bucket deltas, and managing IR risks
  • Martingales & the fundamental theorem
  • Vanilla options (caps, floors, and swaptions) & Black's model
  • Vol matrices, bucket vegas, and managing vol risks
  • Smiles, local volatility models, and equivalent volatilities
  • Mishedging, and the development of the stochastic vol model
  • Using the SABR model to manage volatility smiles, hedging stability
  • Lévy based models for managing volatility surfaces

11:00 Morning break

11:30 Speed networking: a chance to meet each delegate and share backgrounds

11:45 Intermission: Market technicals

  • money vs. scrip
  • holiday calendars, business day rules, and schedule generation
  • day count fractions
  • ref rates & basis spreads
  • leverage, cost of funds, and the credit crisis

13:15 Lunch

14:15 Managing exotics

  • Three elements to modern pricing: model, calibration, and evaluation
  • Choosing a model and the five main interest rate risks
  • HJM models - strengths, weaknesses, usage
  • BGM/LMM models - strengths, weaknesses, usage
  • Short rate models - strengths, weaknesses, usage
  • Markovian models - strengths, weaknesses, usage
  • Summary

15:45 Afternoon break

16:15 Review of day's content

  • Technical review
  • Discussion
  • Common problems faced
  • Strategies to overcome common mistakes

16:45 End of day

Day 2: London 6 December / New York 13 December 2012

09:00 Registration and coffee

09.30 Practical pricing of exotics

  • LGM model
  • Callable swaps (Bermudans)
  • Calibration strategies and the selection of calibration instruments
  • Connection between calibration instruments and vega risks
  • Explicit calibrations for Bermudan
  • Predicted vs. actual vol matrices for different calibrations
  • Dependence of Bermudan price on choice of calibration instruments
  • Dependence of hedges on calibration choices
  • Conclusions

11:00 Morning break

11:45 Adjusters and risk migration

  • Mis-hedging, mis-pricing, and the need for risk migrators
  • Price sharpening via adjusters
  • Example: Correcting a Bermudan calibrated to ATM swaptions
  • Example: Correcting a Bermudan calibrated to caplets

13:15 Lunch

14:15 Pricing/hedging callable range notes & accrual swaps

  • Definition of the deal
  • Mismatched payoffs & convexity corrections
  • Using replication to price non-callable range notes
  • LGM model and potential calibration strategies
  • Potential mishedging of swaption or caplet risks
  • Using internal adjusters to correct prices and hedges

15:45 Afternoon break

16 15 Review of course content

  • Technical review
  • Discussion
  • Action points

16 45 Close of course