Interest Rate Risk Measurement and Management Workshop

CORE COMPETENCIES: Credit Risk Track

Excel Focused Technical Skill Development

2 DAY WORKSHOP
(Workshop is not being offered at this time)

Qualifies for CPD and 14 CPE Credits

INTRODUCTION

Interest rate risk is the exposure of a bank’s financial condition to adverse movements in interest rates, and effective interest rate risk measurement and management is a critical function for any bank. Interest rate risk is an inherent part of the banking business and can be an important source of profits and shareholder value, but mismanaging interest rate risk poses a significant threat to a bank’s earnings and capital base as changes in interest rates can dramatically change the present value of a bank’s assets and liabilities. This intensive and highly interactive course introduces delegates to the latest practical and theoretical developments in interest rate risk analysis and management and offers practical case studies, group activities, and interactive Excel exercises to reinforce both the various concepts and the relationship among these concepts.

Who should attend?

This intensive and interactive training course is designed for finance and risk management practitioners, with limited knowledge of interest rate risk and interest rate risk derivatives. As its primary objectives, the course aims to provide an understanding of interest rate risk and tools for hedging interest rate risk.

What will you get out of this course?

• Gain understanding of the sources and effects of interest rate risk, including yield curve risk, repricing risk, basis risk and optionality

• Learn different methods for modeling the yield curve and its role in interest rate risk management

• Understand how to hedge interest rate risk with interest rate futures and derivatives

• Practical demonstrations of the above will be provided throughout the workshop through interactive Excel spreadsheets that the delegates will be able to use after the course

COURSE OVERVIEW AND OUTLINE

For this intensive and highly interactive course, all delegates are strongly recommended to attend the workshop with a laptop computer loaded with Microsoft Excel.

Introduction to interest rate risk modeling

• Duration and convexity models

• Duration vector models

• Key rate duration models

• Principal component duration models

• Applications to financial institutions

• Interaction with other risks

• Bond price under continuous compounding

Fixed income fundamentals

• Duration

• Convexity

• Common fallacies concerning duration and convexity

• Formulas for duration and convexity

• Bond prices, spot rates and forward rates

• Term structure estimation: The basic methods

• Bootstrapping method

• Cubic spline method

Modeling the yield curve

• Nelson and Siegel method

• Measuring term structure shifts

• Bond convexity: Extra return or extra risk

• The duration vector model

• Closed-form formulas for the duration vector

Hedging interest rate risk

• Hedging with Eurodollar futures

• Hedging with treasury bill futures

• Hedging with treasury bond futures

Interest rate derivatives

• A simple introduction to interest rate swaps

• Motivations for interest rate swaps

• Pricing and hedging with interest rate swaps

• Pricing and hedging with forward rate agreement

• Pricing and hedging with caps, floors and collars

• Pricing and hedging with interest rate swaptions

• Interaction of interest rate risk and credit risk

• Pricing and interest rate risk of a default-prone zero-coupon bond

• Pricing and interest rate risk of default-prone loans and corporate bonds