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FINANCIAL MARKET COURSES

Inflation-Linked Instruments – An Introduction

A collateralized debt obligation (CDO) is a security backed by a pool of loans, bonds or other securities. A CDO deal is broken into multiple tranches, each with separate maturity and credit risk, appealing to different classes of investors. Various forms of credit enhancement are used and CDO tranches are rated by the main credit rating agencies. CDOs represented the fastest growing segment of the securitization market in the years leading up to the global financial crisis of 2007/9.

 

This course explains how CDOs are issued and structured, and outlines the common issuer and investor motivations for entering CDO deals.

  • OBJECTIVES

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

    Define inflation

    Define an index-linked security

    Distinguish between inflation derivative structures and discuss their uses

  • COURSE OUTLINE

    Topic 1: Basics of Inflation

    What is Inflation?

    Price Indexes

    Leading Price Indexes

    Topic 2: Index-Linked Securities

    What are Index- Linked Securities?

    Why are Index- Linked Securities Issued?

    Types of Index- Linked Bonds

    o Capital Indexed Bond

    o Interest-Indexed Bond

    o Other Indexed Bonds

    Topic 3: Inflation Derivatives

    Introduction to Inflation Derivatives

    Inflation Derivatives: The Story so far

    Inflation Swaps

    o Capital Indexed Bond Swaps

    o Year-on-Year Bond Swaps

    o Real Annuity Inflation Swaps

    Inflation Options

    Standalone Inflation Options

    CPI Futures

    Application of Inflation Derivatives

    o Inflation Payers

    o Inflation Receivers

    Inflation Payers – An Example

    Role of Investors in Index- Linked Bonds

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

INTERMEDIATE

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