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FINANCIAL MARKET COURSES

Swaps - Pricing & Valuation (Part II)

This second course on swap pricing and valuation extends from the basic techniques introduced in the first course. This second part focuses on the minutiae particular to individual swap markets, and asks the question "Where do the swap rates come from?" The course also shows how simple calculations can give good approximations to otherwise complex results.

  • OBJECTIVES

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

    Define how the yield curve for swap pricing and valuation is derived from different sources

    Build a yield curve from a combination of deposits and money market futures and identify the factors that may affect the curve

    Outline the different conventions prevalent in the major swap markets

    Calculate values for simple swap structures and describe the imperfections and approximations implicit in any such simplified approach

  • COURSE OUTLINE

    Topic 1: Swap Rates

    Introduction

    The Swap yield Curve

    Interbank Deposit Rates

    Using the Correct Rates

    Money Market Futures Contracts

    Information Contained in Future Prices

    Topic 2: Building the Swap Curve

    Generating the Contract Period Discount Factors

    Generating the Discount Factors from Spot

    Convexity Adjustments

    Declining Liquidity

    Longer-Term Rates – Government Bonds

    Bond Spreads

    Bond Spreads and Maturity

    Causation

    Topic 3: Market Conventions

    Common Market Conventions

    The Major Markets

    Topic 4: Valuing Simple Swap Structures

    Conversion between Types of Convention

    Conversion between Types of Interest Rate

    Annual versus Semi-annual

    Forwards Revisited

    Present Value of a Stream of Cash Flows

    Present Value – Approximation

    Putting it Together – A forward Starting Swap

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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