UCIs – Financial Instruments Valuation

By the end of this training, participants will be able to:

• Understand the features of the main financial instruments and their valuation methods.
• Know the concept of fair value with reference to the key accounting standards (IFRS, Lux GAAP).
• Understand the main legal and regulatory requirements applying to valuation (product requirements and AIFM requirements).
• Apply the core techniques used to price fixed income instruments and compute interest rate sensitivity measures.
• Understand the conceptual framework of arbitrage-free pricing and risk-neutral valuation.
• Price common derivatives such as forwards, futures, swaps, options and instruments with embedded features.
• Understand key credit risk metrics and the pricing of credit default swaps.
  

>>> Day 1 <<<

1. TRANSFERABLE SECURITIES

- Equity, Debt &  Hybrid Securities

- Derivatives Securities

2. SECURITISATION

- Asset-Backed Securities

- Taxonomy of Securitisations

- Cash Flow Waterfall of Securitisations

- Global Financial Crisis and EU Regulatory Response

3. ACCOUNTING STANDARDS 

- Overview of LUX GAAP and IFRS

- IFRS Fair Value, Fair Value Hierarchy and Valuation Techniques

4. LEGAL & REGULATORY REQUIREMENTS

- Product Requirements:

  * UCITS and UCIs Part II
  * Money Market Funds
  * SIFs and RAIFs

- AIFM Requirements:

  * Valuation Policies and Procedures
  * Valuation Models
  * Review of Individual Values of Assets

5. FIXED INCOME PRICING

- Compounding and Discounting Regimes

- Spot and Forward Rates

- Rate Bond Pricing

- Floating Rate Note Pricing

- Interest Rate Swap Pricing

- Inflation-Linked Bond Pricing

- Yield to Maturity, Par Yield and Discount Margin

- Z-spread and Option Adjusted Spread

6. FIXED INCOME SENSITIVITIES

- One-Factor Sensitivity Measures:
  * Modified Duration, Effective Duration and DV01
  * Spread Duration and CS01

  * Modified Convexity, effective Convexity and Cross-Convexities

- Multi-Factor Sensitivity Measures:
  * Key Rate Duration and KR01s
  * PCA and Principal Component Durations

 >>> Day 2 <<<

1. INTRODUCTION TO FINANCIAL DERIVATIVES

- Forwards and Futures, Options, Swaps

2. RISK NEUTRAL PRICING 

- Arbitrage-free Pricing

- State Prices & Risk Neutral Probabilities

- Risk Neutral Pricing

- Binomial Pricing

- Monte Carlo Pricing

3. PRICING FORWARDS, FUTURES & SWAPS 

- Forwards vs Futures

- Forwards and Futures Pricing:

   * Equity Forward and Futures

   * FX Forward and Futures

 - Swaps Pricing:

   * Equity Total Return Swaps

   * Interest Rate Swaps

   * FX Swap

4. PRICING OPTIONS

- Cox-Ross-Rubinstein Model

- Black-Scholes-Merlon Model

- Sensitivity Measures

- Options Pricing:

   * Equity and FX Options

   * Warrants

   * Options on Futures

- Instruments with Embedded Derivatives:

   * Callable and Puttable Bonds

   * Convertible Bonds

5. BLACK-DERMAN-TOY MODEL

- Equity Derivatives vs Interest Rate Derivatives

- Equilibrium vs Arbitrage-free Short Rate Models

- Black-Derman-Toy Model

- Black-Derman-Toy Model Calibration

6. PRICING FIXED INCOME DERIVATIVES

 - Forward Rate Agreement

- Interest Rate Futures

- Bond Futures

- Implied Repo Rate & Cheapest-to-deliver

- Interest Rate Futures Option

- Bond Futures Option

- Cap & Floor

- Swaption

7. PRICING CREDIT DERIVATIVES

- Credit spreads

- Risk Neutral Default Probability

- Recovery Rate

- Default Correlations

- Asset Swap

- Bond Total Return Swap

- Credit Default Swap

- Credit Default Swaption