Interest Rate Derivatives: A Practical Guide to Applications, Pricing and Modelling

  • ID: 461170
  • Book
  • 250 Pages
  • Incisive Media
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Written in a straightforward, clearly structured manner with extensive use of worked examples, this easy to use book gives you an explanation of both basic and advanced principles for the valuation of interest rate derivatives and their hedging applications.

Interest Rate Derivatives describes:

- Pricing methods

- Application, structuring and valuation of:

- Interest rate and Cross currency Swap

- Interest Options

- Methods of managing interest rate exposure

- Trading and hedging strategies and their application in portfolio management.

Basic interest rate mathematics are explored and built upon to delve into a more complex development of interest rate derivatives in general. This work is accompanied by a CD and gives you a unique stand-alone product which serves as a major reference guide on interest rate derivatives.

The book itself is developed around a user-friendly excel based pricing system helping you to better understand the content by applying the theory to real life pricing. This allows you to use the book as an initial reference or learning tool to see how the maths work and leaves you with a practical calculation tool.

We recommend this book for all financial and corporate treasury staff, MBA students, graduates and anyone looking for a mathematical guide to the practical pricing and modelling of interest rate derivatives

About the author:

Todd James has over 12 years of experience in derivatives and debt capital markets including trading, marketing and structuring derivative transactions. He holds a BBA in business and economics from WLU, Waterloo, Canada and an MBA in finance from the University of Toronto.

Having worked in Toronto and London, Todd is currently based in Hong Kong where he structures and develops structured products. He has also been providing regular workshops and seminars for corporate and financial institutions on derivatives, risk management and structured products.

His past experience covers debt capital markets, interest rates, cross currency swaps trading and structuring, and structured products marketing and structuring.
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Chapter 1 Financial Mathematics
Time Value of Money
Continuous Interest Rates
Effective and Nominal Interest Rates
Money Market Yields
Day Count Basis Conventions
Roll Convention

Chapter 2 Short term Interest Rates and Futures
Forward Rates (FRAs)
Short-Term Interest Rate Futures
Convexity with Futures
Calculating “strip” yields from Futures
Futures versus FRAs

Chapter 3 Bonds: Pricing risk and hedging
Bond Price
Bond Yields
Bond Proceeds: Clean vs. Dirty Price
Odd Coupon Bonds
Bond PV01
Bond Duration and Modified Duration
Bond Convexity
Bond Portfolio: Modified Duration and Convexity
Hedging a Bond Portfolio
Hedging and partial Hedging with Bond Futures
Basis Risk

Chapter 4 Interest Rate Swaps: Overview and application
What is an Interest Rate Swap?
How Interest Rate swaps are Quoted
What is a Swap Spread?
Quotation Basis
Interest Rate Swap Applications
The Non-standard (Non-generic) Interest Rate Swaps
Case studies

Chapter 5 Deriving a Zero Coupon Curve
Bootstrapping a Zero Curve from market instruments:
Par Swap Rates

Chapter 6 Asset and Liability Swaps: Cashflows and pricing
Asset Swaps: Par and Market Value Asset swaps
Calculating the Bond price from a target asset swap level
Curvebuilder explained: How to use and price swaps
Liability Swaps
Forward Starting Swaps: calculating the cost of Delay
Amortising Swaps
MTM of Swaps
6.08 Spreadlocks
6.09 Treasury Locks

Chapter 7 Hedging Interest rate Swaps
IRS Risk: PV01
Hedging swaps with Eurodollar Futures
Hedging Swaps with Treasuries
Managing a Portfolio of Swaps

Chapter 8 Cross Currency Interest Rate Swaps
Basis Swaps
Calculating the Basis point conversion
Fixed Fixed Swap
Asset Swap: Example
Liability Swap: Example
Case Study: Relative Borrowing

Chapter 9 Interest Rate Options
Pricing and application
Swaptions European
Callable securities
Volatility Stripping
Hedging Options
More Exotic Structures
Range Accrual Swap
KO/KI Caps/Floors
KO Swaps

Chapter 10 More exotic swaps/options
Libor in arrears

Chapter 11 FAA 133 and IAS 39
Swaps and options

Chapter 12 Documentation and Credit
Credit Midigation

Curvebuilder Xl functions explained
Conventions (diff currencies)
FX forwards
Data Sources
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