FINANCIAL MARKET COURSES
Japanese Equity Market
Receivable Finance (New)
Lending - An Introduction
The Lending Cycle
Commodities - An Introduction (Revised)
Commodities - Trading (New)
Commodities - Livestock (New)
Commodities - Softs (New)
Primer – MiFID II/MiFIR (New)
Understanding Private Wealth Management Business
Private Wealth Management Products & Services
Primer – Smart Beta (New)
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Range Accrual Structures
The structured note market is noted for its ability to develop new and innovative structures as it strives to meet the requirements of diverse groups of investors and issuers around the world. Range accrual structures originally emerged in 1993 and subsequently became a popular method of trying to obtain cheap funding relative to some underlying interest rate. As well as allowing borrowers to attain highly attractive below-market funding, these instruments also rewarded investors as long as interest rates remained low.
This course looks at range accrual structures in detail, examining their features and characteristics and showing how to price these instruments.
On completion of this course, you will be able to:
• Define a range accrual structure and differentiate it from other structured notes
• Outline the main features and characteristics of range accrual structures
• Price a range accrual structure
Topic 1: Introduction to Range Accrual Structures
• What are Range Accrual Structures?
• Why use Range Accrual Structures?
• Trading Environment for Range Accrual Structures
• Investor View of Range Accrual Structures
• Callable Range Notes
Topic 2: Pricing Considerations for Average Rate Options
• Range Accrual Notes – Structuring Process
• Interest Rate Environment
o Forward Rates
• Digital Option Structure
o Digital Cap Structure
• Breakeven Analysis
o Cap Breakeven Level
o Floor Breakeven Level
• Volatility Analysis
o Estimating Future Rates
o Cap Breakeven Analysis
o Floor Breakeven Analysis
Topic 3: Valuation of Range Accrual Structures
• Range Accrual Structure – Valuation Process
• Valuing Daily Digital Caps
• Valuing Daily Digital Floors
• Converting Option Value to Spread Payments
• Valuing Daily Digital Options – Quick Method
• Sensitivity Analysis
o Parallel Shift Sensitivity
o Factor Sensitivity
o Volatility Sensitivity
ESTIMATED COMPLETED TIME
This course examines the evolution and construction of inverse FRNs and closely-related structures, where the coupon being paid to investors is a hybrid of different components (such as a fixed part and a floating part). The course analyzes the motivations behind the purchase of such structures, as well as how the value of the structures can change.
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