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EDHEC-Risk Executive Education

Advanced Fixed-Income Investing Seminar - Course Contents and Outline

Contents Day One:

   

Morning: Interest Rate Risk Modelling

» Measuring Interest Rate Risks

  • Term structure of interest rates: empirical properties and classic theories
  • Dynamics of the term structure: stylised facts and theories
  • Estimating the term structure: direct versus indirect methods (Nelson-Siegel, Vasicek)

» Modelling Interest Rate Risks

  • Single- and multi-factor models of interest rates and bond returns
  • Factor models for inflation rate uncertainty and liability returns
  • Model calibration—empirical issues

   

Afternoon: Interest Rate Risk Management and Portfolio Construction

» Interest Rate Risk Hedging from the Asset Management and ALM Perspectives

  • Dynamic interest rate risk hedging: duration and beyond
  • Static interest rate risk hedging: futures, swap, swaptions, caps, floors, and asset swaps
  • Hedging bond portfolios: asset management and ALM perspectives

» Dynamic Substitution of Credit and Interest Rate Risks

  • From static to dynamic risk management
  • Dynamic core-satellite strategies in a fixed-income environment
  • Optimal substitution of sovereign bonds for corporate bonds

Contents Day Two:

   

Morning: Fixed Income Strategies in the New Environment

» Semi-Hedged Market-Timing Strategies

  • Carry and roll-down strategies
  • Butterfly strategies: construction approaches (50/50, principal component analysis, and minimum variance) and optimisation
  • Conditional curve trades: how to optimise the return/risk profile
  • Cross-market trades
  • Volatility trades: gamma and vega products

» Arbitrage and Quasi-Arbitrage Opportunities

  • Bond versus strip arbitrage
  • Cash-and-carry arbitrage
  • Asset swaps and inflation-linked versus nominal bond arbitrage
  • Rich and cheap analysis of bonds

» Structured Products and Strategy-Linked Notes

  • Standard structured products: range accrual, multi-callable, snowball, spread options, etc.
  • Structured products with strategies as underlying: general properties and method of construction
  • Examples of strategies

» Trade Opportunities in the New Environment

  • Recent market trends
  • Relative value approach in volatility matrix, government/swap spreads, and credit curves
  • Trade opportunities

   

Afternoon: Credit Investing: The Market and Products

» The Credit Markets

  • An overview of the credit markets: size, structure, players and asset types
  • Rating agencies: role and rating methodologies.
  • The role of credit derivatives: now and looking forward

» Cash-based Credit Instruments

  • Fixed and floating rate bonds: credit risk, spread measures, and interest rate risk
  • The asset swap: mechanics, uses, and risks

» The Credit Default Swap

  • Detailed analysis of the CDS contract
  • The CDS-cash basis: definition and behaviour
  • The standard valuation model for a CDS contract
  • Forward CDS, digital CDS, loan CDS and options on CDS

» The CDS index

  • Detailed mechanics of the standard CDS index contract
  • Price quotation convention and CDS index valuation
  • Defining and explaining the CDS index skew

» Advanced Index Products

  • Credit index options: expressing a view on macro-credit volatility.
  • Index tranches: expressing a leveraged view on systemic credit risk
  • Credit-based CPPI and CPDOs

Contents Day Three:

   

Morning: Credit Risk Modelling

» Models Used in Credit Investing

  • Structural models (Merton, KMV and CreditGrades™) and their application to debt-equity arbitrage, risk-management and rating estimation
  • Reduced form intensity models (Duffie-Singleton and Jarrow-Turnbull) and their application to the pricing of credit risky payoffs

» Portfolio Credit Risk Management

  • Identifying the risks in a credit portfolio: interest rate risk, spread volatility and correlation, recovery rate uncertainty and default correlation
  • The Gaussian copula model for portfolio credit: theory and implementation
  • The CreditMetrics™ and KMV portfolio models
  • Beyond copula models: fully dynamic approaches
  • Risk measures for portfolio credit: the problems with VaR
  • Risk-return optimisation for portfolio credit using coherent risk measures

   

Afternoon: Credit Trading Strategies

» Bond Strategies

  • Standard curve trades: level, slope and twist with default risk
  • Relative value in the capital structure: senior versus subordinated claims

» CDS Curve Strategies

  • Interpreting the shape of the CDS curve
  • Building a tool for trade analysis
  • Trading CDS forwards

» Trading the CDS-Cash Basis

  • Drivers of the CDS-cash basis
  • How to identify, analyse, implement and risk-manage CDS basis trades

» Debt-Equity Arbitrage Using CDS

  • Trade analysis using a structural model
  • Hedge ratio estimation and scenario-based risk analysis

» CDS Index Strategies

  • Hedging a bond portfolio
  • Beta strategies: using CDS indices to take a systemic credit risk
  • Trading the CDS index skew
  • Trading the index roll
  • CDS index curve trades using forwards


 
      

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