Interest Rate Swaps and Swaptions

This invaluable two day course provides an in-depth introduction to the swaps and swaptions market. It includes swap and swaption mechanics, terminology, conventions and pricing along with instruction on how to calculate profit & loss, unwinds and assess risk characteristics. The course also provides essential guidance on specific trading strategies and hedging applications.

Available for in-house delivery. Call +44 (0)1483 573150
Duration: Two days (9.00am to 5.00pm)
Location: In-house
Trainer: Stephen Aikin
Please contact us for a quotation

Course Outline

Interest Rate Swaps

+ Swap market background and history
+ Swap mechanics and conventions
+ Swap applications: Using swaps to transform asset and liability exposure
+ Calculating swap P&L and unwinds
+ Workshop: Swap applications

Swap Valuation

+ Introduction to swap valuation considerations
+ Present value considerations
+ Deriving discount factors from deposits and par swap rates
+ Pricing a EUR 5Y Fixed Annual 30/360, Floating act/360 swap
+ Swap risk: PV01 and DV01
+ Calculating swap profit and losses
+ Approximating swap NPV and DV01
+ Carry and roll-down
+ Overnight Index Swaps (OIS)
+ Swap collateralisation
+ Swap valuation using OIS discounting

Asset Swaps

+ Par asset swaps
+ Calculating the par asset spread
+ Using asset swaps

Spread and Curve Trading Using Swaps

+ Swap spreads, drivers and mechanics
+ Curve trades: Steepeners and flatteners; Bull and bear steepeners and flatteners; Constructing a DV01 neutral bear flattener
+ Butterfly trades: Belly richening and belly cheapening butterflys
+ Case study: Power Reserve Dual Currency Note hedging using long dated swaps


+ Background to swaptions
+ Types of swaption
+ Swaption terminology and payoffs
+ Swaption settlements
+ Pricing of swaptions using modified Black 76
+ Swaption volatility
+ Volatility influences
+ Effects of issuance of structured products and callable securities: PRDC and TRUPS

Swaption Risk Management

+ Swaption Pricing Characteristics
+ Swaption Greeks
+ Delta
+ Gamma
+ Theta
+ Vega
+ Higher Order Greeks
+ Swaption Pricing Workshop

Swaption Hedging Applications

+ Difference between hedging with caps/floors and swaptions
+ Basic hedging ideas
+ Contingency hedging
+ Selling swaption premium: Italian swaps scandal
+ Gap hedging
+ Swaption hedging case study

Trading Swaptions

+ Directional trading
+ Volatility and spread trading: Straddles and spreads; Relative value volatility trading using straddles
+ Butterfly's: Relative value volatility trading using Butterfly's
+ Curve trading
+ Conditional bull/bear steepeners/flatteners
+ Carry and roll-down