Event Agenda

Agenda

Course Tutors:

Vladimir Sankovich, Global Head of Analytics, DRW

Qinghua Zhu, Quantitative Researcher, DRW

Day 1 | 19th September

09:00

Registration and refreshments

09:30

General Concepts and Principles - Pricing Framework and relevance of the Credit Support Annex (CSA)

  • Fundamental Risk-Neutral Pricing Framework and banks' unsecured funding rates
  • Introduction to CSA
  • Connection between collateralization and funding/discounting
    • Pricing under domestic cash collateral
    • Pricing under foreign cash collateral
    • Case of physical (non-cash) collateral. Handling of haircuts. Blending of funding rates
    • Introduction to CSA funding options. UK Law vs New York Law CSA options

11:00

Morning Break

11:30

Yield Curve Construction

  • General Concepts
    • Pre-OIS: Single Curve Model, Libor based discounting
    • First step: Why the "forward + discounting" two curves approach does not work. Dual Curve Construction, Libor and OIS united
    • Introducing tenor basis into the curve
    • How to properly incorporate cross-currency basis in the curve?
    • Results: The pricing workflow and risk under the multi-curve framework
  • A brief guide to curve interpolation techniques
    • Choice of interpolating quantities (IFR, Zero Rates, Discount Factors, etc)
    • Choice of interpolation methods
      • Flat Forwards
      • Constrained Smooth Interpolation
      • Pros and Cons of PWC versus Globally-smooth curves
      • "In-between" interpolations: tension splines with auto-calibrated tensions
      • Incorporating "market expectations" into the yield curve model
      • Smoothness-locality tradeoff

13:00

Lunch

14:00

Convexity and the Cheapest To Deliver Collateral Option

  • Brief introduction to the concept of convexity
  • Sources of convexity in multi-curve frameworks
  • Examples of convexity effects (Zero Coupon Swaps, Unsecured Swaps)
  • CSA with optionality: examples of eligible collateral
  • What happens when substitutions are not available? Sticky Collateral problem
  • Modelling the CSA option with Full Substitution: possible approaches
  • The Sankovich-Zhu model: closed form solution for any number of collateral currencies

15:30

Afternoon break

16:00

Introduction to non-linear IR Derivatives and Volatility Modelling

  • Main types of OTC IR options: Caps, Swaptions
  • Impact of collateral and CSA discounting on the pricing of Vanilla European IR Options
  • Volatility Smile modelling
    • Local Volatility 
    • Stochastic Volatility
  • SABR - the workhorse of IR options modelling
  • Using SABR in practice
    • Effects of the SABR parameters
    • Interpolation of SABR parameters
    • Hedging under SABR
  • Incorporating "market expectations" in the volatility model ("Events Date Model")

17:30

End of day one

Day 2 | 20th September

09:00

Refreshments

09:30

SABR Extensions and Alternatives; Introduction to CMS-based products

  • SABR Recap and its shortcomings
  • Removing SABR arbitrages by simple parametric extensions
  • Zero- and negative strike options: shifting SABR to handle negative rates
  • Alternatives to "Classical SABR" 
    • Case Study: The ZABR model
    • Local volatility approximation
    • Efficient implementation
    • Additional flexibilities: multiple beta, shift, etc.
  • Valuing CMS products

11:00

Morning break

11:30

SABR Extensions and Alternatives; Introduction to CMS-based products continued

  • CMS Spread Options
  • Introduction to Copulas
  • Pricing CMS Spread Options using SABR and Copulas
  • Quanto CMS Spread Options
  • Cash-settled swaptions
  • Swaptions with variable notional

13:00

Lunch

14:00

Bermudan Swaptions

  • Bermudan swaptions, their common varieties and motivation for their existence
  • Factors affecting the pricing of Bermudan swaptions
  • A primer on interest rates term structure models 
    • Case study: Linear Gaussian Model (LGM)
    • Case study: Quadratic Gaussian Model (QGM - Markov Functional approach)
  • Choosing the right model for Bermudans
  • Calibration choices

15:30

Afternoon break

16:00

Inflation Derivatives

  • Inflation indices, IL-bonds and their users: inflation markets participants.
  • Seasonality effects and their estimation
  • IL Zero Coupon Swaps, Inflation curve construction, including seasonality and lags
  • Inflation derivatives: YoY swaps, asset swaps, options, exotics
  • Inflation derivatives modelling framework: adopting HJM/LGM and SABR to handle inflation

17:30

End of course