Sales and Trading Bootcamp

3-DAY CAPSTONE INTENSIVE EVENT:

DAY ONE:

Module 1: Introduction and agenda

1. Structure of the OTC marketplace, market practices and conventions.
2. Understanding cash flows, FX as a model
3. High Frequency Trading strategies -FX triangulation
4. Industry trends – Digital vs Analog in the OTC markets

Module 2: Introduction to the wholesale markets

1. Exchange traded markets and Over the Counter markets
2. Clearing services and the mark-to-market process. The Zero-Sum game.
3. Vertical integration in futures exchange markets
4. Horizontal integration of equities and options markets
5. OTC markets: common clearing and and bilateral settlement
6. Prime Brokerage
7. Settlement – who needs to settle, and why. Differences between FX and Fixed Income and other securities.
8. Industry trends – Digital vs Analog in the OTC markets

Module 3: The common money market instruments

1. Defining returns: absolute vs. annual
2. Time deposits, the LIBOR concept, Repo, Stock Loan, Certificates of Deposit, CP
3. Day count explanations
4. Review of synthetic loans as forward FX, including credit risk
5. Basic derivatives and their relationship to the markets: FRAs, OIS, Eurodollar Futures, Interest rate swaps, Interest rate options (caps/floors/swaptions)
6. Exercise: Are derivatives necessary for synthetics? Create a synthetic instrument using cash instruments only.
7. Case study and discussion: When LIBOR broke down in 2008.

Module 4: Spot and Forward FX cash flows

1. Review spot FX and crosses. Explain “inside” and “outside” quotes.
2. FX cash flow engineering and forward FX swaps contracts: Quote conventions, deposits arbitrage, hedging forward deals.
3. Exercise: Market making in forward FX and deposits arbitrage

DAY TWO:

Module 5: Yields and settlement conventions.

1. The Thursday-Friday arbitrage of the 1980s, caused by the settlement differences.
2. Other settlement conventions –particularly non-dollar currencies on a US holiday.
3. Modified following business day convention.
4. Month  and conventions (do not cross the calendar month).

Module 6: Financing with Repo (2.5 hours)

1. Repo strategies in financial engineering – financing the hedge.
2. The impact to yields due to financing: on-the-run UST bonds vs off-the-run.
3. Case study: when interest rate swap spreads went negative. What were the implications?
4. Exercise: Create the LIBOR + 40 floater on the 30 year UST.

Module 7: Risk – The Kelly Formula

1. History of the Kelly Formula – managing risk.
2. Calculating the edge and the odds.
3. Exercise: model different investments using edge/odds.

DAY THREE:

Module 8: Trading volatility – the optionality of convexity.

1. Examine the convexity difference between a CME Eurodollar future and a FRA, with examples.
2. Examine the convexity difference between a high-coupon UST and a low coupon UST with examples.

Module 9: Concepts in Synthetics

1. What is a synthetic instrument? Is it really synthetic?
2. Case study: synthetic AAA mortgage tranches, and how that did not act like a real AAA security.
3. Exercise: create different asset swaps, combining a cash bond and a swap, employing different levels of leverage

Module 10: Swaps and the swap logic – the “zero value” asset

1. Role of Libor Deposits as one reference rate, compared to fed funds, CP, Bills, Prime as alternate reference rates.
2. Highlight “transactional rates” versus “polled or survey rates”.
3. Swap example: Interest rate swaps, basis swaps (CMT, CMS, Prime-Libor, etc)
4. Swap Example: Equity swap.
5. Swap Example: Commodity swap
6. Swap Example: Cross Currency swap
7. Swap Example: Credit Default Swap
8. Discussion: How are single name CDS different from OTM options?

Module 11: Options and options concepts

1. Calls and Puts
2. Write versus Buy
3. Options combinations
4. Exotic options