### Day 1: Principles of Valuing FRA's, Swaps: The cash flow approach to valuation

#### Principles of Valuing Forwards & Swaps

- Nature of cash flow analysis
- Representing an FRA in notional cash flows
- Marking-to-market an FRA
- De-compounding the swap into a bond and a FRN
- Equating the value of the fixed and floating legs

#### Deriving the Discount Curve

- Where do the discount factors come from?
- Recent market developments in the choice of instruments
- Role of the Credit Support Annex (CSA) and other credit mitigation developments

- Calculating the zero-coupon discount function
- Deriving discount factors from money market instruments
- Deriving discount factors from market swap rates: bootstrapping explained

- Problems in deriving the discount function
- Instrument choice
- Interpolation methodologies

#### Marking-to-Market Interest Rate & Currency Swaps

- Identifying the cash flows
- Representing the floating cash flows as notional cash flows
- Extending the principle: pricing a deferred start swap
- Marking-to-market a currency swap
- Pricing an asset swap

#### Pricing Equity Swaps

- Determining the fair price of an equity swap
- What if market hedge instruments are mis-priced?