Managing Corporate Exposure using Derivative Solutions

This three-day workshop allows participants to analyze a series of interest rate and currency exposures and tailor derivative solutions more commonly used to transform specific risk profiles. In teams, participants will also build an options portfolio, develop a trading strategy, perform simple stress tests, implement delta hedging techniques and mark-to-market their trading gains/losses.

See separate class where day three can be substituted with an Options Game. (Risk3018)

No sessions currently available. Contact client services to get the next available date.
CPE CREDITS
21.5
Corporate hedgers and/or investors; relationship managers and salespersons responsible for originating derivatives solutions to meet the needs of hedgers and/or investors; financial control and auditors; market risk managers; computer systems developers, legal
No advance preparation required.
Students will be able to:
  • Identify and graph the market risks in a series of interest rate and currency exposures
  • Structure appropriate derivative solutions using futures contracts, forward contracts and single and combined option strategies on foreign exchange and interest rates
  • Develop and implement a trading strategy in options on FX rates
  • Calculate no-arbitrage prices, termination values and mark-to-market values on a variety of OTC and exchange-traded derivatives
  • Discuss strengths/weaknesses in binomial pricing models, analyze option price changes to option sensitivity factors, perform basic stress testing functions on a portfolio of options and review delta hedging techniques.
None
Day 1 - Managing interest rate risk on corporate debt portfolios using forward markets and products
Identify, quantify, report and manage interest rate risk
  • Define market risks in traditional forms of gapping
  • Review structure, major players, pricing conventions in liquid and illiquid money markets
  • Discuss key factors affecting shape of yield curves
  • Calculate forward interest rates using bootstrapping techniques
  • Construct and analyze market risks in future cash flow reports with mismatched assets and liabilities
  • Review cost-to-close methods
Case Study - Participants will develop and implement a gapping strategy, report their market risks, prepare future cash flow report and calculate both realized and unrealized MM gains/losses using current revaluation techniques.

Introduction to derivatives markets and products

  • Discuss corporate financial risks and more commonly used hedging techniques
  • Review framework for setting corporate hedging policies
  • Review structure of derivatives markets and products

Hedging interest rate exposures in corporate debt portfolios using Libor forwards and IR swaps

  • Identify, diagram and label interest rate risks in floating and fixed rate debt portfolios
  • Review structure of Libor forwards and discuss how they are priced
  • Diagram and label how interest rate exposures are transformed when combined with Libor forwards
  • Discuss how financial institutions hedge OTC derivative positions using futures markets and products
  • Review structure of IR swaps and discuss how they are priced
  • Calculate PVs for IR swap unwinds
  • Compare advantages/disadvantages when structuring corporate hedges using IR swaps
Group Exercises/Team Presentations: In teams, participants will analyze a series of debt exposures, structure appropriate hedges using forwrds contracts and present findings to class.

Day 2 - Managing interest rate risk on corporate debt and investment portfolios using IR swaps and options
Hedging interest rate risk in corporate debt portfolios using options
  • Review basic options terminology
  • Identify key factor sensitivities in binomial pricing models and their impact on option premiums
  • Structure derivative solutions using single and combined option strategies (caps, floors and collars)
  • Define methods used for estimating volatility
  • Compare advantages/disadvantages between heding via IR swaps and options on interest rates
Group Exercises/Team Presentations: Participants will analyze a series of debt exposures and structure appropriate hedges using both single and combined option positions

Hedging interest rate risk in corporate investment portfolios using OTC forward instruments

  • Identify, diagram and label price sensitivities in bond investments to changes in yields
  • Diagram and label how market risks on investments portfolios are transformed when hedged using IR swaps
  • Review, structure and price basis swaps and forward start swaps
Group Exercises/Class Presentations: participants will analyze a series of yield exposures, structure and price appropriate derivative solutions using forward contracts and present findings to class.

Enhancing yields on corporate investments using single and combined option strategies

  • Structure, price and graph transformed exposures when combining long bond positions, IR swaps and options
  • Graph and label yield enhancement on underlying long bond positions using single and combined option hedging strategies
  • Discuss how mark-to-market process effects cost of hedge on non-cash assets and contingent liabilities
Group Exercises/Class Presentations: Participants will analyze a series of investment portfolios, structure yield enhancement strategies using options and present findings to class.

Day 3 - Managing corporate currency exposures using FX forwards and option markets and products
Establish a framework for understanding how to measure, report and manage market risks on corporate currency exposures
  • Review structure of foreign exchange markets
  • Discuss pricing conventions and quotation systems on FX rates
  • Define net exchange position
  • Review current revaluation methods and mark-to-market process
Case Study: Participants execute a series of FX and MM transactions, construct an Exchange Blotter and Liquidity Position Report and calculate both realized and unrealized profits/losses.

Hedging foreign currency receivables/payables using forward FX markets and products

  • Discuss key elements in creating a forward FX market
  • Review interest covered arbitrage hedging and pricing techniques
  • Calculate no-arbitrage break even forward FX rates
  • Practice Problems: Participants will calculate a series of FX forward contracts
  • Structure and price appropriate hedges using FX forwards and NDFs
  • identify, graph and label underlying currency exposures and demonstrate how they are transformed when combined with OTC forwrd derivatives solutions
Group Exercises/Team Presentations: In teams, participants will identify, structure and price currency hedges using forward contracts.

Hedging foreign currency receivables/payables using options on foreign exchange rates

  • Identify, graph and label underlying currency exposures and demonstrate how they are transformed using single and combined options strategies
  • Compare advantages/disadvantages between heding through use of currency forwards vs. options on FX rates
Group Exercises/Team Presentations: In teams, participants will identify, structure and price currency hedges using single and combination option strategies

Clients who register for this course will receive a complimentary 3 month subscription to the Financial Times and FT.com. The Financial Times is the world's most respected financial newspaper, providing a broad assessment on finance, business and the industrial sector. Subscriptions will start within 6-8 weeks of the application process and are limited to one per client. For questions about your subscription, call 800-628-8088 or email uscirculation@ft.com. U.S. enrollees only. (All non-U.S. enrollees will receive a subscription to FT.com only.) Lunch included for all students taking day classes.

Lunch included for all students taking day classes.