Interest Rate Swaps

This course covers all the fundamental aspects of interest rate swaps; from the key mechanics of the product to their most actively traded applications. Additionally, we will cover the intuitive pricing and valuation issues of the products; supported by an understanding of the counterparty risks involved in Over-The-Counter (OTC) execution.

Interest Rate Swaps (IRS)
What is an Interest Rate Swap (IRS) – examining the structure of generic swaps
1. Overview of the interest cash flows and how they are traded
2. What is being “swapped” – fixed rates for floating rates (LIBOR)
3. The interest payments and daycount conventions
4. Introducing the LIBOR replacements – transformation into the new Risk-Free Rates –
5. How is the swap rate priced? – The fixed rate as the average of the floating leg fixings
How swaps are quoted and traded
6. Outright rates vs. swaps spreads
7. Quoting swap spreads vs. outright rates

Intuitive Swaps Pricing
How to value an IRS
8. What is the basis point value of a swap and why is this useful?
9. Marking to marketing (MtM) a swap trade
10. Unwinding an interest rate swap – closing out a swaps trade

Swap Applications
• Liability management – hedging new issues (bonds and loans)
• Asset management – immunising bond portfolio from interest rate risk using Asset Swaps (ASW)

Documentation, Credit and Settlement
• The ISDA master agreement – the global standard legal document
• How to manage the counterparty risk – the Credit Support Annex (CSA), collateral and netting
• Alternative credit mitigation techniques including central clearing