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FINANCIAL MARKET COURSES

Swaps - Book Management

Thirty years ago, the swap desks of global banks were small, arcane areas of finance. Things have changed considerably since then. According to a 2005 BIS survey, the global swap market had outstanding contracts with a notional value of almost USD 150 trillion. The USD sector alone had a size of nearly USD 60 trillion; in comparison, the USD bond market had just USD 23.5 trillion of outstanding issues.

 

In this course, we will cover the day-to-day trading and risk management of a swaps portfolio. We will examine the position management and cash management of a swaps book from a trading perspective. We assume that the basic structures and mathematics of swaps(such as cash flows and the derivations of zero curves) are already understood.

  • OBJECTIVES

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

    Identify the activities of a swap desk

    Explain various ways of hedging a swaps book

    Describe how various positions are managed in a swaps book

    Describe how a swaps book helps manage cash flows

    Explain how currency basis is generated

  • COURSE OUTLINE

    Topic 1: The Swap Trading Desk

    Role of a Swap Trader

    Long & Short Positions

    Risk Management

    Topic 2: Hedging Concepts

    Duration-Weighted Hedging

    Concept of PVBP

    Hedging Using Principal Component Analysis

    Hedging Basis Risk

    Hedging Basis Risk using Swap Futures

    Limitations of Swap Futures

    Topic 3: Position Management

    Bucketing & Tweaking a Swaps Book

    Single Swap Equivalent Positions

    Forward Positions

    Basis Positions

    Value at Risk (VAR)

    Advantages & Disadvantages of VAR

    Carry and Slide

    Topic 4: Managing Cash Flows

    Sources of Cash Flows

    The Cash Report

    Deposits

    FX Forwards

    Maturities

    Problem of Assuming a Flat Floating Rate Index

    Swaps with Large Cash Positions

    Topic 5: Currency Basis

    Theoretical & Actual FX Forward Rates

    Effect of FX Forward Rates on Currency Basis

    Source of the Bias

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    90 Minutes

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