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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Target Redemption Notes (TARNs)
TARNs are notes that offer a potentially high-yielding short-term investment in exchange for investors assuming the risk of long-term poor performance. While targeted redemption has been most prominent in the interest rate world, a structured note in any asset class can be a TARN.
Valuing a TARN is complex, due to the path dependency of the structure. The high degree of path dependency means that a fairly sophisticated model needs to be used to value a TARN, even if the underlying coupons are fairly simple.
In this course, we will study the distinctive characteristics of TARNs. We will also look into the widespread applicability of the TARN concept. Finally, we will identify the valuation difficulties and analyze the approach taken to solving them.
On completion of this course, you will be able to:
• Describe the key features of a target redemption note (TARN) and determine its coupons and redemption period
• Identify the key participants in the market for TARNs and describe their roles
• List the factors to be taken into consideration while valuing a TARN structure
Topic 1: Basics of Target Redemption Notes
• TARNs – Structure
o Coupon & Redemption
o TARNs – Investors Perspective
o Embedded Floor
o Implied Forwards
Topic 2: Variations of the TARN Structure
• TARNs – Variations
o CMS Spread TARNs
o FX-Linked TARNs
o Equity- Linked TARNs
Topic 3: TARNs – Market Participants
• TARNs – Market Participants
Topic 4: Valuation of TARNs
• Valuation of TARNs
o Value of TARNs
o Probability of Redemption
o Path Dependency
• Complex Valuation Model
o Libor Market Model
o Monte Carlo Simulation
ESTIMATED COMPLETED TIME
CMS Option Structures
This course introduces the different types of CMS-related options and the complex valuation issues raised by these options. The course describes the process that the market follows to price these CMS-related options. The course also describes the market and performance of structured notes and the payoff relating to each option.
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