"The empires of the future are the empires of the mind" - Sir Winston Churchill
 

1. Financial Concepts
2. Bonds
3. Yield Curve Analysis
4. Money Markets
5. Foreign Exchange
6. Company Analysis
7. Equities
8. Futures
9. Swaps
10. Conventional Options
11. Exotic Options
12. Structured Securities
13. Credit Derivatives
14. Portfolio Management
15. Structured Finance
16. Fundamental Analysis

Financial Concepts

The fundamental math, statistics and time value of money concepts that you need for all the modules

Bonds

Fundamentals and calculation forms for Bonds, Maturity, Yield & Coupon

Yield curve Analysis

We begin this module with a brief discussion of central bank open market operations and the role of the discount window and in this context we introduce some of the key money market rates that are associated with central bank monetary policy in some countries. 

We then explain the key factors that affect yields at the longer end of the curve and discuss traditional theories about the shape of the curve, with some examples illustrating the complex interaction between different parts of the curve. 

The module ends with a brief summary of some of the practical issues faced by the market analyst when constructing a yield curve: 

Money Market

Applications, market quotation and pricing of fixed deposits, CDs, discount securities, repo and FRAs. Includes trading simulation.

This course introduces the main money market instruments. We look at the structure and applications of various cash and derivative instruments and we explain how to calculate their price, accrued interest and yield.

Foreign Exchange

Applications, market quotation and pricing of spot and forward FX contracts. Includes trading simulation.

In this module, we explain the structure of spot FX quotations, both against US dollar and also on crosses. We show the principles behind profit & loss calculation and overnight rollovers, and we outline the factors which drive a market maker's quotation.

Market making is a practical skill: the more you do it, the better you get at it.           

Learning Objectives

By the end of this module, you will be able to:  

·           Apply the appropriate next business day conventions to establish the value date on a spot FX transaction 

·           Interpret direct and indirect quotations in spot FX in any currency pair 

·           Quote and trade spot FX using the market terminology with confidence 

·           Describe the main functions of the back office in FX operations 

·           Derive cross-currency spot rates from rates quoted against USD 

·           Calculate the average rate, accrued profit, revaluation profit and realised profit on a spot FX position 

·           Explain the rationale for daylight limits, overnight limits, counterparty limits and daily settlement limits in controlling FX exposures 

·           Roll over spot FX positions overnight using tom-next and spot-next swaps

Company Analysis

Interpretation of financial statements; using financial ratios in comparable analysis; discounted cash flow valuation techniques. Includes cash flow valuation model.

This module gives you a step-by-step guide to interpreting a company's income statement. We also discuss the accounting concepts of accruals and depreciation. 

In the exercises you will have the assignment of comparing the income statements of two companies.

Learning Objectives

By the end of this module, you will be able to:  

·          Define the main components of the income statement  

·          Distinguish between income and cash flow  

·          Outline different ways of calculating depreciation and explain its effect on reported profits  

·          Explain the difference between fixed and variable costs

Equities

Key equity ratios and how they are used in comparable analysis, plus dividend discount and capital asset pricing models. Includes valuation models and trading simulation.

In this module we define three ratios that are commonly used to value equities:  

·           Price-earnings ratio (P/E ratio or PER)

·           Dividend yield (DY)

·           Total return

We highlight the weaknesses inherent in these ratios as indicators of value, and we introduce the concept of the yield gap as a link between equities and the fixed income markets.

Learning Objectives

By the end of this module, you will be able to:  

·           Calculate earnings per share, dividend per share, dividend cover and payout ratio on a historic and prospective basis  

·           Calculate price/earnings ratio and dividend yield  

·           Apply these ratios to assess share prices, and highlight their limitations  

·           Explain the significance of the yield gap in assessing equity market levels

Futures

Applications, market quotation and pricing of bond futures, interest rate futures and index futures. Includes valuation models and trading simulation.

In this module, we explain what financial futures are and we outline how futures exchanges work in terms of: 

·          Margining procedures

·          Settlement procedures  

In the other modules in this course we look at specific contracts and how they are used to manage market risk.

Learning Objectives

By the end of this module, you will be able to:  

·          Outline, step by step, the procedures for trading futures  

·          Calculate initial and variation margins and profit/loss on a futures position

Swaps

Applications, market quotation and pricing of interest rate swaps, currency swaps and equity swaps. Includes valuation models and trading simulation.

Learning Objectives

By the end of this module, you will be able to: 

·          Define the key terms of a generic swap contract 

·          Interpret swap rate quotations and express them on any required interest rate basis 

·          Make a market in interest rate swaps 

·          Explain how swaps may be used to manage the risks on assets and liabilities 

·          Derive a swap rate from the interest rate futures strip 

·          Mark to market a swap position 

·          Calculate the delta of a swap position 

·          Price a swap off the bond yield curve 

·          Warehouse a swap position using bonds or bond futures 

·          Explain the factors that affect the swap spread 

·          Design a par-par asset swap and explain its pricing

Conventional Options

Applications, market quotation and pricing of European and American interest rate options, FX options and equity options. Includes valuation models and trading simulation.

Options Concepts

In this module, we introduce some key options terminology and we explain in general terms how the options work. 

In the other modules we look at specific contracts and how they may be used to manage market risk.

Learning Objectives

By the end of this module, you will be able to: 

·          Distinguish between call and put options  

·          Distinguish between European and American style options  

·          Explain what is meant by in-the-money, at-the-money and out-of-the money options  

·          Outline the general procedures for dealing in exchange-traded and OTC options  

·          Calculate the expiry profit/loss payoffs and breakeven levels on options positions  

·          Mark to market an options position  

·          Compare the gearing of options positions with that of equivalent positions in the underlying assets  

·          Analyse an option premium in terms of its intrinsic value and its time value

Option Pricing

Learning Objectives

By the end of this module, you will be able to:  

·          Identify the key theoretical assumptions underpinning option pricing models  

·          Use binomial, analytic and Monte Carlo simulation models to price conventional options  

·          Derive synthetic options and futures prices through put-call parity  

·          Interpret and calculate historic volatility  

·          Calculate an option's implied volatility  

·          Define the volatility curve

Option Risks

Learning Objectives

By the end of this module, you will be able to:  

·          Analyse the exposure of an options trading book in terms of its delta, vega, rho, psi and theta  

·          Delta-hedge an options position  

·          Distinguish between nominal gearing and effective gearing  

·          Explain the significance of gamma as a measure of actual volatility

·          Interpret the volatility smile

Interest Rates Options

Learning Objectives

By the end of this module, you will be able to:  

·          Describe the structure, market pricing, settlement and typical applications of:

·           Bond options

·          Eurocurrency options

·          Interest rate guarantees

·          Caps, floors and collars

·          Swaptions  

·          List some of the disadvantages of exchange-traded options, compared with OTC contracts  

·          Construct a zero-cost collar  

·          Compare the features of a swaption with those of a cap or a floor  

·          Use the Black pricing model to price European caps/floors and swaptions, and highlight some of its limitations  

·          Describe the impact of interest rate correlation in explaining pricing differences between caps/floors and swaptions

FX Options

Learning Objectives

By the end of this module, you will be able to:  

·          Describe the structure, market pricing, settlement and typical applications of exchange-traded currency options  

·          List some of the disadvantages of exchange-traded options, compared with OTC contracts  

·          Interpret price quotations and trading conventions in the OTC FX options market  

·          Manage the risks on an FX options trading book with increased confidence

Equity Options

In this module we describe the structure of index options and single-stock options, and we interpret their pricing conventions. 

We also examine some of the typical applications of equity options in fund management.

Learning Objectives

By the end of this module, you will be able to:  

·          Outline the structure of exchange-traded index options and single-stock options contracts 

·          Interpret the pricing of equity options 

·          Explain some of the risk management applications of equity options

Options Strategies

Learning Objectives

By the end of this module, you will be able to:  

·          Construct vertical, horizontal and diagonal spread trades designed to meet specific floor, cap and breakeven objectives  

·          Implement straddle and strangle volatility strategies and analyse their exposures  

·          Manage the market risk on underlying positions using low-premium or zero-cost collars and participations  

·          Enhance the yield on underlying assets through selling covered calls or puts  

·          Design a box arbitrage  

·          Trade the volatility smile with risk conversions and risk reversals

Introduction to Exotic Options

Exotic options are contracts that are different, in some way, from the conventional European or American option. Recall the standard terms of the conventional option:

·           Digital Options

·           Barrier Options

·           Asian Options

·           Forward Options

·           Multi-asset Options

·           Compounded Options

Structured Securities

Structure and pricing of callable/putable bonds, asset-backed securities, warrants, convertibles and equity-linked products. Includes valuation models.

·           Callable Bonds

·           Asset-backed Securities

·           Warrants

·           Convertible Bonds

·           Structured Option-based Notes

Credit Derivatives

Structure, applications and pricing of total return swaps, credit swaps and credit options. Includes valuation models.

Learning Objectives

By the end of this module, you will be able to:  

·           Outline the structure of a typical credit default swap (CDS) 

·           Compare the relative merits of cash settlement vs. physical settlement in a CDS contract 

·           Define the key terms of a CDS contract, in particular:

·           Reference obligation(s)

·          Credit event

·          Materiality

·          Restructuring maturity limitation clause

·           Explain how default swaps may be used in credit portfolio risk management 

·           Explain how a CDS position may be hedged with (or arbitraged by) an asset swap or an FRN on the same reference obligation 

·           Identify the key factors that cause variations between premiums quoted in the CDS market and the LIBOR spreads in the asset swap or FRN markets 

·           Outline the structure and typical applications of:

·           Total return swap

·          The credit spread forward

·          Credit options 

·           Explain the implication of the early termination clause on the payoff and the pricing of total return swaps, credit spread forwards and credit options    

·           Calculate the forward yield spread on a bond

Portfolio Management

Measurement of portfolio return and risk; construction of efficient and optimal portfolios, and measurement of portfolio performance. Includes various portfolio optimisers and performance attribution models.

Learning Objectives

·           By the end of this module, you will be able to: 

·           Calculate the return on a portfolio 

·           Calculate the risk on a portfolio given a variance-covariance matrix or an array of security betas 

·           Explain the effect of asset return correlations on the risk of a portfolio 

·           Explain the advantages of single- and multi-factor models in security valuation and portfolio construction 

·           Calculate the systematic and diversifiable risks on a portfolio given the variance-covariance matrix or an array of security betas 

·           Explain the implication of the Capital Asset Pricing Model (CAPM) for security and portfolio selection

·           Use the Sharpe and the Treynor ratios to identify optimal portfolios

Structured Finance Principles

Learning Objectives

By the end of this module, you will be able to: 

·           Highlight the key differences between structured finance and other types of business, such as securitisation or project finance 

·           Explain how the lender takes a legal charge over the assets of the borrower 

·           Explain how secured lending can be said to be self-liquidating 

·           Calculate the loan to value ratio and the income cover on a secured loan 

·           Outline the key characteristics of the UK debentures market 

·           Explain the difference between a debenture and a securitisation 

·           List some of the factors that influence the pricing of structured finance transactions

Structured Finance Applications

Learning Objectives

By the end of this module, you will be able to: 

·           Explain the ways in which whole-business structured finance differs from traditional bank lending 

·           Identify the types of project that would be suitable for financing with project-backed bonds 

·           Describe the benefits of a property sale-and-leaseback to the property seller 

·           Outline the structure of a synthetic securitisation and describe some of its advantages 

·           Illustrate with examples different techniques of tax-efficient borrowing and tax-efficient lending 

·           Outline the main factors that drive cross-border finance arbitrage

Fundamental Analysis

Fundamentals of exchange rate and interest rate determination; economic indicators; monetary and fiscal policy.

Learning Objectives

By the end of this module, you will be able to: 

·           Describe with examples the different ways in which macroeconomic indicators affect the price of financial instruments 

·           Distinguish the different ways in which anticipated and unanticipated news impact on market prices 

·           Distinguish between leading, coincident and lagging indicators 

·           Give examples of commonly-followed activity indicators, inflation indicators and policy indicators 

·           Identify some of the statistical problems inherent in all economic indicators