Draft Course Outline
- Capital Market Instruments

Day 1 Money Markets and Foreign Exchange

Introduction:

  • Overview over Financial Markets
  • Risk and Return Characteristics
  • Current developments
  • Cash Flows: the Underlying of any Financial Instrument

Time Value of Money and Interest Rates (I):

  • Factors determining the Value of Money
  • Future Value and Present Value
  • Discount Factors and Compound Factors
  • Yield versus Return
  • Differences between Capital Markets and Money Markets

Explanation of the commonly used Market Conventions:

  • US Bond Basis
  • US Money Market Basis
  • UK Money Market Basis
  • ISMA Convention
  • Actual/Actual

Payment Day Convention

  • Preceding and Following Payment Day Convention
  • Modified Following Payment Day Convention
  • FRN Convention

Money Market Instruments:

  • Discounted Securities versus Interest-bearing Securities
  • Interest-Rate Calculations

Forward Markets:

  • Developing a Forward Market from Deposits
  • Forward Rate Agreements (FRA’s)
  • Interest Rate Futures

Foreign Exchange Markets:

  • Spot FX
  • Forward Outright
  • FX Swaps
  • Covered Interest Arbitrage
Day 2 Bonds

Introduction to Bond Markets:

  • Main Players
  • The Investor Perspective
  • The Borrower Perspective
  • The Intermediaries Perspective
  • Credit Structure, Ratings and Credit Agencies

Bond Market Segments:

  • Domestic Bond Market
  • Foreign Bond Market
  • International Bond Market
  • Global Bond Markets

Bond Pricing:

  • Pricing and Valuation of Fixed-Rate Bonds
  • Accrued Interest
  • The Relationship between Price, Yield and Coupon

The Debt Origination Process:

  • The Role of Banks as Intermediaries between Borrowers and Investors
  • The Interplay between Origination, Sales and Trading
  • Syndication of New Issues

Variations to Fixed-Income Bonds:

  • Floating Rate Notes (FRN’s)
  • Zero-coupon Bonds
  • Step-up Coupon Bonds
  • Convertibles
  • Bonds with Equity Warrants
  • Callable Bonds
  • Asset-backed Securities
  • Strips
  • Repurchase Agreements (Repo’s)
Day 3 Term-structure of Interest Rates and Swaps

Coupon Stripping

  • TIGR, LION’s, CATS, DOGS, TR, STRIPS

Term-structure of Interest Rates

  • Par Curve
  • Zero-coupon Curve
  • Forward Curve
  • Bootstrapping

Interest Rate and Currency Swaps:

  • The Swaps Mechanism
  • Types of Swaps

Applications of Swaps:

  • Speculation
  • Hedging
  • Arbitrage
  • Risk Management
  • Creating Synthetic Instruments

The Principle of Swap Pricing:

  • The Need for Forward Rates
  • The Need for Zero-coupon Rates
Day 4 Futures and Options

Introduction to Futures and Options:

  • Definitions
  • Over-the Counter (OTC) versus Exchange Traded Products
  • The Role of The Clearing House

Pricing and Valuing Futures:

  • Basic Futures Mechanism
  • Pricing Futures through Cash and Carry Arbitrage
  • The Value Basis
  • The Carry Basis
  • The Importance of Credit

Options Strategies:

  • Straddles
  • Strangles
  • Bear Spreads
  • Bull Spreads
  • Butterflies
  • Risk Reversal
  • Cylinders
  • Put - Call Parity

Using Options to

  • Speculate
  • Hedge
  • Arbitrage

A Simple Approach to Option Pricing

  • Volatility
  • The Binomial Model
  • The Black & Scholes Model

Risk Measures and the Greeks:

  • Delta
  • Gamma
  • Vega
  • Rho
  • Tau

Case Study

  • Managing the Risks:
  • Delta-hedging your Option Positions

Course Summary:

  • Putting Financial Instruments Into Context
  • Risk Management