Course outline: Swap Pricing & Risk Management of the Trading Book

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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 sets out to provide delegates with a comprehensive understanding of how to value and risk manage swap book exposures.
Course aims:
  • Develop a pricing framework
  • Derive the inter-bank discount function
  • Hedge swap book exposures
  • Understand the credit risk associated with swaps

Pricing and Valuing Swaps

This section explains the complexities behind pricing interest rate and currency swaps.

  • Review of time value of money
    • deriving the inter-bank discount function
    • interpolation methodologies
    • accrual conventions
  • Valuing a swap set by futures prices and FRA's
  • Developing a pricing framework:
    • representing the cash flows as a par bond and FRN
  • Applying the technique to determining the fixed rate in non-vanilla products:
    • amortising, accreting, roller coaster swaps
    • forward start swaps
    • currency swaps
  • Building an asset swap package

Swap Book Interest Rate Risk Management

  • Traditional approaches to swap book risk management
  • Using government bonds and futures on government bond to hedge the exposure
    • understanding repo
  • Calculating the PV01 of the swap
  • The portfolio approach to risk management
  • The delta hedge concept
  • Cash bucketing and pyramid hedging approaches

Measuring the Credit Risk in Swap Books

  • Understanding the link between market and credit exposures
  • Replacement cost concept
  • Portfolio v transactional approach
  • The regulatory approach: The Basle Accord

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