Programme

Hong Kong - 1 December 2011

Day 1

09:00 Registration and coffee

09:30 Basic fixed income instruments

• Basics: discount factors, FRAs, swaps, and other delta products
• Curve stripping, bucket deltas, and managing IR risks
• Martingales & the fundamental theorem
• Vanilla options (caps, floors, and swaptions) & Black's model
• Vol matrices, bucket vegas, and managing vol risks
• Smiles, local volatility models, and equivalent volatilities
• Mishedging, and the development of the stochastic vol model
• Using the SABR model to manage volatility smiles, hedging stability
• Lévy based models for managing volatility surfaces

11:00 Morning break

11:30 Speed networking: a chance to meet each delegate and share backgrounds

11:45 Intermission: Market technicals

• money vs. scrip
• holiday calendars, business day rules, and schedule generation
• day count fractions
• ref rates & basis spreads
• leverage, cost of funds, and the credit crisis

13:15 Lunch

14:15 Managing exotics

• Three elements to modern pricing: model, calibration, and evaluation
• Choosing a model and the five main interest rate risks
• HJM models - strengths, weaknesses, usage
• BGM/LMM models - strengths, weaknesses, usage
• Short rate models - strengths, weaknesses, usage
• Markovian models - strengths, weaknesses, usage
• Summary

15:45 Afternoon break

16:15 Review of day's content

• Technical review
• Discussion
• Common problems faced
• Strategies to overcome common mistakes

16:45 End of day

Hong Kong - 2 December 2011

Day 2

09:00 Registration and coffee

09.30 Practical pricing of exotics

• LGM model
• Callable swaps (Bermudans)
• Calibration strategies and the selection of calibration instruments
• Connection between calibration instruments and vega risks
• Explicit calibrations for Bermudan
• Predicted vs. actual vol matrices for different calibrations
• Dependence of Bermudan price on choice of calibration instruments
• Dependence of hedges on calibration choices
• Conclusions

11:00 Morning break

11:45 Adjusters and risk migration

• Mis-hedging, mis-pricing, and the need for risk migrators
• Price sharpening via adjusters
• Example: Correcting a Bermudan calibrated to ATM swaptions
• Example: Correcting a Bermudan calibrated to caplets

13:15 Lunch

14:15 Pricing/hedging callable range notes & accrual swaps

• Definition of the deal
• Mismatched payoffs & convexity corrections
• Using replication to price non-callable range notes
• LGM model and potential calibration strategies
• Potential mishedging of swaption or caplet risks
• Using internal adjusters to correct prices and hedges

15:45 Afternoon break

16 15 Review of course content

• Technical review
• Discussion
• Action points

16 45 Close of course