Course Category

• Bond market, players and market characteristics
• Classification of debt instruments
• Bond market instruments

Bond Pricing

• Mechanics of pricing the bond
• The day count convention
• Different types of yield
• Yield calculation
• Price volatility characteristics of option-free bonds
• Total return analysis calculating the total return

Bond Price Volatility

• Duration and calculation of effective duration
• Duration of perpetual bond, floater and inverse floater
• Basis Point Value (BPV) and calculation of BPV of eurodollar futures, swaps and FRAs
• Convexity and calculation of convexity

Yield Measures

• Current yield and its calculation
• Yield-to-maturity, computation of yield-to-maturity and its approximation
• Yield-to-maturity of a zero coupon bond
• Relationship between coupon rate, current yield and yield-to-maturity
• Yield-to-call and calculation of yield-to-call
• Total return analysis calculating the total return

Yield Curve Analysis

• Concept of yield curve and its types
• Various theories under yield curve analysis
• Types of interest rates and their computation
• Applications of yield curve analysis

Introduction to Derivatives

• Fundamentals of derivatives
• Forward contracts
• Futures contracts
• Margin concept
• Swaps

Options - I

• Fundamentals of options
• American and European options
• Upper and lower bound for option prices
• Put-call parity theorem

Options - II

• Option strategies
• Valuation of European call option
• Black Scholes approximation
• Valuation of American call options
• Exotic options

Fixed Income Derivatives

• Forward rate agreements
• Interest rate futures
• Interest rate swaps
• Interest rate options

Equity Markets

• Ordinary shares, preference shares and their valuation
• Equity indices and the calculation of market capitalization
• Warrants and its valuation
• Convertibles and its valuation

Equity Derivatives

• Stock index futures
• Equity Options
• Equity Swaps
• Valuation of these derivatives

Equity Risk

• Equity Risk and its components
• The various methods of measuring equity risk
• The importance of diversification and its impact on equity risk

Currency Risk and Currency Markets

• The role of currency markets in modern financial markets
• The sources of currency risk
• Currency futures and options
• The role of currency swaps in currency markets
• Pricing and valuation of currency swaps

Commodity Markets and Commodity Derivatives

• Types of commodities and commodity market
• Spot, cash and physical delivery contracts
• Commodity forward contracts
• Commodity future contracts
• Commodity swaps

Fixed Income Risk

• Different types of risks the investor in fixed income market is exposed to
• The different dimensions of interest rate risk

• The concept of emerging market risk
• The difference between the developed and developing markets
• Different types of emerging market risks and the methods to measure them
• The role of supervision in emerging markets

Identification of Market Risk Factors

• Risks faced by banks and financial institutions and the interaction between them
• Possible sources of loss to a portfolio or security
• Risks faced in emerging markets
• Liquidity risk

Introduction to Market Risk Management

• Approaches to market risk measurement
• Introduction to Value at Risk (VaR)
• VaR parameters viz., confidence level, horizon and volatility
• Steps in computing VaR
• Shortcomings in VaR

VaR Methods

• Composition and requirements of VaR models
• Approaches to VaR computation viz., linear valuation and full valuation
• Computing VaR using variance-covariance, historical simulation, and Monte Carlo simulation.

Stress Testing

• Concept of stress testing and need for it
• Analyze the creation of hypothetical and historical scenarios
• Application of stress test scenarios into market risk modeling
• Importance of stress testing to risk managers

Modeling Risk Factors

• Financial asset price movements
• Phenomena of volatility clusters
• Conditional volatility models viz., Exponential Moving Average approach and GARCH
• Implied volatility approach

Risk Budgeting

• Risk Budgeting Process
• Risk Decomposition
• Mathematics of Risk Decomposition

23. Hedging Linear Risk

• The concept of hedging and its types
• Basis risk in hedging using futures
• Optimal hedge ratio
• Application of optimality in fixed income and equity markets

Non-linear Risk – Options

• Delta
• Gamma
• Vega
• Theta
• Rho

Measuring and Managing Corporate Exposures

• Types of corporate exposures when the corporate has exposure to foreign exchange assets and liabilities

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