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FINANCIAL MARKET COURSES

Caps & Floors – Chooser & Double-Strike Structures

Certain cap structures are designed to lower upfront costs while substantially retaining rate protection. In this course, we focus on two such structures - chooser caps and double-strike caps. The course explores the features and uses of these cap structures and lists their pricing procedures. The course will also differentiate chooser and double-strike structures from plain vanilla cap structures and outline the benefits of using these products.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Identify the features of chooser caps and list the steps for pricing chooser caps

    Analyze the performance of a chooser cap structure in relation to changes in market rates or volatilities

    Identify how a double-strike cap operates and compare the cost savings and the risks associated with the structure

    Analyze the performance of a double-strike structure in relation to changes in market rates or volatilities

  • COURSE OUTLINE

    Topic 1: Basic of Chooser Structures

    Chooser Caps

    Chooser Cap

    Pricing- Components

    Exercising a Chooser Cap

    o Upward Sloping Yield Curve

    o Downward sloping yield curve

    Pricing Approach for Chooser Cap Structures

    o Pricing a Chooser Cap

    o Pricing Disparity

    o Dealer Considerations

    Auto-flex Cap-A cheaper Alternative

    Topic 2: Chooser Cap Sensitivities

    Chooser Vs. Regular Cap Sensitivities

    o Simple Moves in the Market

    o Changes in Volatility

    o Changes in the Shape of the Curve

    Binominal/Trinomial Trees

    Topic 3: Basics of Double-Strike Structures

    Double Strike Caps

    o Double Strike Caps- An example

    Cost Savings with Double Strike Structures

    Price- Structure Variation

    Risks in Double Strike Structures

    Topic 4: Double Strike Caps Sensitivities

    Double Strike Effects pf Competing Forces

    o Simple Moves in the Market

    o Changes in Volatility

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    90 Minutes

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