School of Derivative Instruments

5 days 5-9 Dec 2016, New York United States $5,415.00 Download brochure Add to basket

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Derivatives markets have witnessed significant change in the years following the financial crisis, not only in how they are regulated, but in the market structure for the trading and clearing of derivative instruments, and in how they are priced.
This programme will provide delegates with a detailed understanding of how these changes have impacted the derivatives landscape, and will be of particular interest to those in client-facing positions and those who are operating in back and middle office functions, who require a comprehensive overview of the changes and how they affect operations.
This course will cover:
  • Introduction to derivatives instruments and markets
  • Pricing and valuation of interest rate and currency swaps
  • Derivatives applications:  the uses and benefits
  • Non-linear derivatives
Course Training Method
The programme will use traditional and well-tried techniques, lectures, worked examples and many realistic case studies showing in detail how the products are used and why. The course has been designed to show the products in a highly practical way, without over-complication, with clear illustrations of each so that participants may readily understand them and the role the bank plays.


Who should attend

  • Hedgers
  • Derivatives sales and trading personnel
  • Risk control, risk management and audit personnel
  • Corporate account officers
  • Asset managers
  • Corporate treasury
  • Instructors

    We work with a series of expert instructors, please select the course location of interest to review the credentials of who will be delivering the programme.

    New York
    Graham Dudlyke

    The course director is a highly experienced derivatives consultant whose career boosts a wealth of practical experience, spanning in excess of 25 years within the financial markets, holding senior positions in a number of major financial institutions in London and New York.

    He worked with JP Morgan Chase within the Arbitrage trading group in both London and New York, with responsibility for management of interest rate option trading, marketing and structuring. At Mitsubishi UFJ he managed OTC derivatives trading of swaps and options across European currency markets, financial engineering, and synthesis of structured assets. As Manager of SE Banken's Global Derivatives Trading Group, he held overall responsibility for swaps, options and fixed income portfolio trading and risk management, new product development, and corporate and institutional marketing of structured debt products.

    He now lectures and consults internationally on all aspects of derivatives and capital markets and is highly respected for his practical market approach, working with commercial and investment banks, institutional investors and hedge fund managers, central banks and other official institutions.

    The course director holds an MBA from Imperial College, London and an MA from Oxford University.


    New York

    New York Hotel

    This program takes place on a non-residential basis at a New York hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.

    As with all programmes on-site administrators are with you throughout the programme to ensure smooth administration and group interaction.

    Related Courses


    We can bring this course to your company's office.

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    We produce learning solutions that are completely unique to your business. Our tailored learning solutions are designed specifically for your organisation’s needs.

    We’ll be here to support you every step of the way. From the initial consultancy through to evaluating the success of the full learning experience. We'll ensure you get the maximum return on your training investment.

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    Day 1

    Introduction to Derivative Instruments and Markets

    • Evolution and development of the derivatives markets
    • Derivatives defined: characteristics of derivative instruments
    • The range and diversity of the derivatives markets
    • Linear and non-linear derivatives
    • Outright (forwards, futures and swaps) and option derivatives
    • Over-the-counter vs exchange traded derivatives
    • OTC derivatives documentation and legal issues
    • Applications of derivatives: risk transfer
    • An overview of applications in trading, hedging and arbitrage
    • Benefits and shortcomings of derivatives
      Accounting for derivatives – Impact of IAS39/FAS133
      Hedge accounting

    ‘Delta 1.0’ Derivatives: Forward and Futures Markets

    • Forward contracts
      Definitions and nomenclature - market practices
      Generic characteristics of forward contracts
      Pricing principles of forward/futures contracts
      Arbitrage-free pricing
      Backwardations and the breakdown of arbitrage free valuation
      -Credit risk exposure and forward contracts
    • Futures contracts
    • The mechanics of futures contracts and futures markets
    • The role of the clearing house
    • Margining: definition and operation
    • Credit risk and futures contracts
    • Interest rate forward contracts and futures
      Forward Rate Agreements (FRAs)
      The FRA market – conventions: price, quotation and settlement
      Pricing and valuation of FRAs
      Applications of FRAs in trading and interest rate risk management
      Contract features - short term interest-rate futures (STIRs)
      Applications of futures in trading and hedging; managing basis risk

    CASE STUDY 1: Pricing and valuation of FRAs – Application to exposure management

    Swaps Markets

    • Evolution and development of the swaps market
    • Swaps market dynamics
    • Swaps market participants and roles
    • Business drivers – applications of swaps to trading, portfolio risk management and funding (ALM)
    • Generic characteristics of swap contracts
      Interest rate, currency & basis swaps
      Equity swaps
    • Swaps documentation and legal issues
      -Termination, assignment by novation
      Netting agreements
      Legal enforceability of netting arrangements

    Interest Rate and Currency Swaps

    • Generic swap structures
      -Par interest rate swaps
      Basis swaps
    • Generic and non-generic swaps – a classification of types
    • Cross-currency swaps
      Cross currency basis swaps
      Principal exchanges – implications for removal of initial and/or final amounts
    • Swaps market conventions and practices
      -Nomenclature, terminology and market quotation conventions
      Interest rate accrual and payment conventions
      Stub interest calculation periods (long/short)
      Off-market contract terms and margins

    Day 2

    Pricing and Valuation of Interest Rate and Currency Swaps

    • Basic foundations of swap valuation - nil value of par swaps
    • Discounted cash flow (DCF) methodology
    • Estimation of zero coupon discount factors from market based data
      Yield curve construction using FRA rates and the futures strip
      Yield curve construction using par swap rates and bond yields
    • Pricing and Valuation techniques
      -Practical pricing and valuation applications
      Mark to market - swap portfolio valuation
      Swap terminations and assignments - fee estimation
      Off-market swap structures - margin and fixed coupon calculation

    Interest Rate and Currency Swaps - Funding, Risk Management and Trading Applications

    • Applications of interest rate derivatives to client risk management strategies
      -Hedging currency and interest rate exposures
      Hedging fixed and floating interest rate assets and liabilities
      Creating ‘synthetic’ assets and liabilities
    • Applications of swaps and options in liability management
      -Credit risk arbitrage – identifying and realizing comparative advantages
      Funding diversification Applications of swaps and options in asset management
      Asset swaps
    • Exposure management - identifying client risk profiles
      -Selection of appropriate risk management strategies using OTC solutions
      Outright hedges (swaps, FRAs) vs option-based hedges
    • Comparative analysis of risk management strategies
      -Advantages/shortcomings of risk management solutions; opportunity gains and losses
      Tailoring interest rate options to client interest rate risk management strategies
      The use of options in hedging contingent liabilities
    • Trading Strategies using interest rate derivatives
      -Interest rate swaps as a substitute for fixed income bond trading
      Credit trading: yield curve arbitrage strategies
      Option trading strategies
      Directional trading strategies
      Premium generation (yield enhancement) strategies
      Costs and benefits of using derivatives in trading and portfolio management strategies

    CASE STUDY 2: Pricing a new bond issue structured with a currency swap. Structuring an asset swap Swap Risks – Market Risk and Counterparty

    Credit Risk

    • Measurement of swap risks
    • PV01, Delta
    • Hedging a swap transaction with bonds, futures
    • Counterparty Credit Risk Exposure
    • Credit risk mitigation
      Collateral agreement
    • Credit and regulatory capital requirements

    CASE STUDY 3: Risk analysis of swap portfolio – Risk measurement and construction of hedge relationship

    Day 3

    Non-Linear Derivatives: Options

    • Option characteristics, terminology and market conventions
      -Put and call options
      European, American, Asian and Bermudan option styles
      Intrinsic and time value
      Put-call parity
    • Global option markets
      -Exchange traded and OTC option markets
      -FX options; interest rate options; equity options; equity index options; warrants
    • Pay-off profiles and their interpretation
      -Understanding Option Valuation - Option Pricing Models
    • Intuitive approach to understanding option valuation and value drivers
      -Option valuation: intrinsic value, time value and ‘moneyness’
    • Option pricing models
      -Advantages and shortcomings of Black-Scholes
      a critical analysis
      Simulation methods of option valuation –

    Monte Carlo Methods

    • Volatility in option valuation
    • Time value: impact on option values

    Volatility Estimation

    • Historic, implied and realized volatility measures
    • Volatility smiles and skews

    Option Risks

    • Dynamic risk characteristics of options
    • The Greeks (Delta, Gamma, Theta, Vega, Rho and Phi risks)
    • Interpretation of Delta - cash equivalent risk representation
    • Delta hedging Market impact of Delta hedging
    • Why Delta hedge – a brief overview of volatility risks (Gamma, Vega)
    • Time decay
    • Carry related risks (Rho, Phi)

    Interest Rate Options

    • Caps, floors and swaptions
    • Pricing techniques: Black Vs. term structure models
    • Cap/floor market conventions, terminology, price quotation basis
    • European and American style swap options
    • Swap option market conventions, terminology, price quotation basis
    • Applications in trading, investment and portfolio management

    CASE STUDY 4: Corporate exposure management applications of caps and floors

    Hedging and Trading Strategies Using Options

    • Risk-reward profiles of naked option strategies
    • Put-call parity:
      Risk reversals, range forwards, participating forwards, synthetic forwards and options
    • Hedging and arbitrage strategies using options
    • Creating trading and hedging strategies using options
      Spreads: vertical (call and put) and horizontal (calendar) spreads
    • Volatility trading strategies
      -Straddles, strangles and butterflies
    • Analysis of trading strategies
      -Payoff profiles
      Instantaneous risks (delta, gamma etc.)

    CASE STUDY 5: Analysis of option trading and hedging strategies

    Day 4

    Derivatives Applications

    Interest Rate and FX linked Structured Products

    Interest Rate Linked Structured Products

    • Callable/Puttable bonds
    • European/Bermudan (step-up) callable bonds
    • Range Accrual notes
    • CMS-linked notes
    • Capped, floored FRNs
    • Inverse FRNs
    • Callable, non-callable
    • TARNs
    • Ladders’ (LIFTS) and ‘Snowblade’ structures

    CASE STUDY 6: Analyzing and reverse engineering an inverse floater with embedded options

    CASE STUDY 7: Pricing a cancellable swap; Bermudan stepup

    Callable Bond

    FX Derivatives

    Forward Foreign Exchange

    • Outrights and FX swaps
    • Pricing using interest rate differentials
    • Quotation conventions
    • Calculating outright forward FX rates
    • Cross rate forwards
    • Determination of synthetic interest rates using forwards
    • Applications of forward FX in hedging transaction and translation exposure
    • Non-deliverable forwards (NDFs)
    • Uses and benefits of NDFs

    Currency Options

    • Market conventions, terminology, price quotation basis
    • Puts, Calls; European, American styles
    • Hybrid structures: Collars, Range forwards,

    Participating Forwards, Knock-In Forwards

    • Hedging transaction and economic exposure using FX forwards and options
    • Applications to currency exposure management
    • Exotics
      Barrier options (Knock-in, knock-out, reverse, double knock-out structures)
      Digital options
      -Average rate options
    • Currency Linked Structured Products
      -Currency linked deposits
      Knock out structured notes
      Dual currency notes
      Reverse dual currency notes
      Power reverse dual currency notes
      Range accrual notes

    CASE STUDY 8: Evaluation of currency exposure hedging strategies; Pricing of FX linked range accrual note structure.

    Day 5

    Derivatives Applications - The Uses and Benefits of Equity Derivatives

    • Applications in portfolio management
    • Corporate applications of equity derivatives
    • Index vs. single stock derivatives
    • Delta 1.0 derivatives: synthetic equity proxies; market access vehicles
    • Asset allocation using equity derivatives
    • Arbitrage opportunities: profiting from stock borrow, interest rate, net dividend differentials, market access
    • Hedging strategies using options
      Put spreads
      Collars, put-spread collars
    • Portfolio strategies using options
    • Yield enhancement strategies
      Over-writing and under-writing strategies
    • Directional trading strategies
      -Risk reversals and Synthetics
      Option Spreads
    • Volatility and Correlation trading strategies
      Volatility and Variance swaps
      Dispersion trading strategies

    Equity Linked Structured Products

    • Simple synthetics

    Principal Protected Equity Linked Certificates

    • Investment Rationale
    • Capital Guaranteed equity linked structured notes
    • Equity linked TARN certificates
    • Basket ELN’s & ‘Best of ’ and ‘Worst of ’ structures
    • Partial-Principal Protection: Notes offering limited downside protection
    • Reverse and Mandatory Convertibles

    EXERCISE 9: Structuring and pricing capital guaranteed equity linked note structures
    The Credit Derivatives Market

    Market Overview

    • Evolution and market development
    • Recent developments and key issues
    • Terminology and nomenclature
    • Market participants
    • Credit indices (iTRAXX) and related products

    Credit Derivatives: Default Swaps (CDS)

    • Definitions and nomenclature
    • Credit Events – Definitions and associated problems
    • Documentation (ISDA credit default swap masteragreement)
    • Single asset and basket structures
    • Settlement mechanisms
    • Credit indices (iTRAXX)
    • Pricing and valuation of CDS
    • Arbitrage based methods
    • Deriving default curves
    • Estimation of default probabilities, hazard rates

    EXERCISE 10: Pricing and valuation of CDS

    2nd Generation Credit Derivatives

    • First to default FTD CDS
    • Standardized FTD baskets: analytics and settlement mechanisms
    • nth to default basket structures
    • CDS options

    Derivatives Application - Uses and Benefits of Credit Derivatives

    • Credit (portfolio) risk management
    • Using credit derivatives to manage and securitize credit risk
    • Regulatory capital management
    • Credit risk diversification, risk reduction
    • Investment applications (Synthetic asset generation)
    • Leverage (unfunded exposures)
    • Yield enhancement (exploiting of credit arbitrages)
    • Market access (synthetic loan generation)
    • Credit trading

    Structured Credit Products

    • Collateralized debt obligations (CDOs)
    • CDO structures
      Cash flow CDOs
      Synthetic CDOs
      Funded and unfunded structures
    • Single Tranche CDOs
      -DJ Traxx Index tranche CDOs
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    We have a combined experience of over 60 years providing learning solutions to the world’s major organisations and are privileged to have contributed to their success. We view our clients as partners and focus on understanding the needs of each organisation we work with to tailor learning solutions to specific requirements.

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    • Quality – our clients consistently rate our performance ‘excellent’ or ‘outstanding’. Our average overall score awarded to us by our clients is nine out of ten.
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    • Knowledge – our 150 strong team of industry specialist trainers are world leading financial leaders and commentators, ensuring our knowledge base is second to none.
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    • Recognition – we are accredited by the British Accreditation Council and the CPD Certification Service. In an independent review by Feefo we scored 96% on service and 95% on product