Course outline: Short Term Interest Rate Futures

In-house Training

Capital Markets & Derivatives Training specialise in developing and delivering bespoke in-house training courses and programmes. This sample course outlines the content and structure of a typical course.

Objective: This course is designed to provide delegates with a very detailed knowledge of how money market (STIRS) futures are priced and calculated and how they relate to other derivatives and underlying cash market instruments.
Course aims:
  • Define a STIR futures contract and FRA
  • Calculate a forward interest rate
  • Examine the arbitrage boundaries
  • Study the behaviour of basis on hedges and spread trades
  • Compare STIR futures with swaps and FRA's

Money Market Instruments

This section provides a review of the underlying money market instruments, focusing on key participants and the methods of trading.

  • Coupon bearing instruments
    • commercial paper, certificates of deposit
    • forward rate agreements, forward rate notes
    • repos and swaps
  • Discount instruments
    • treasury bills
    • bills of exchange, bankers acceptance
  • Euro commercial paper

Calculating a Forward Interest Rate

This section explains how forward interest rates are calculated and how the STIR futures "price" is kept in check by arbitrage activities.

  • Short term interest rate futures
    • contract specification
    • forward/forward calculation
    • pricing a STIR future
    • calculating the arbitrage channel
  • Forward rate agreements FRA's
    • terms and specifications
    • valuing a FRA
    • extrapolation and interpolation

Hedging and Trading with STIR Futures

This section covers the issues of basis risk when hedging and trading with STIR futures contracts.

  • Hedging for a futures delivery day
    • Non-delivery day futures hedges
    • identifying basis risk
    • refining the hedge ratio
  • Basis and hedging
    • calculating the basis point value of an exposure
    • basis trading techniques
    • spread trading applications
  • Interest rate swap overview
    • fixed v floating swaps
    • pricing a swap from STIR futures

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