Implementing Fundamental Quantitative Techniques

Training Provided by London Financial Studies Course Outline In a complicated financial world a detailed understanding of the application of quantitative techniques is essential. This course provides an in-depth coverage of practical quantitative methods important in today's financial markets. This course is charged and can be booked by the day. Select the days that meet your needs, or participate in the whole course for a thorough understanding of these important techniques. Who The Course is For Anyone who needs to understand a comprehensive set of tools for managing risk in the financial markets. The seminar will be of special interest to: * Risk managers * System developers * Traders and derivatives teams * Consultants and brokers Objectives To provide practitioners with a practical understanding of how a range of tools can be used to manage analyse and price financial instruments. Participants will study: * Principal components * Duration and the impact of convexity * Methods of interpolation, their uses and limitations * Regression techniques * Implementing Monte Carlo simulations * Binomial and trinomial tree building * How to model assets and price derivatives in continuous time * Implementing dynamic term structure models

Implementing Fundamental Quantitative Techniques Day One

Convexity and the Money Markets

* Review of the basics
* The difference between forwards and futures
* Sensitivity analysis: Futures v FRAs
* The impact of interest rate volatility
* The importance of correlation between forward and spot rates

Workshop: Futures, FRAs and convexity
Bootstrapping a yield curve

* The form of the discount function
* Methods of interpolation
* Maximum smoothness
* Cubic splines in detail
* Interpolation and the forward curve

Workshop: Interpolation, forward curves and pricing
Day Two
Curve building techniques for use with limited data

* Applying multiple regression to bond data
* Finding a functional form for the yield curve
* Basis splines and other approximating functions
* Econometric issues
* Extension to credit and inflation curve building

Workshop: Building a bond market yield curve
Principal components and yield curve hedging

* Review of single and two-factor duration
* Principal components
* Using principal components with B-splines to derive hedging factors
* Bond arbitrage and portfolio immunisation

Workshop: Portfolio Immunisation
Day Three
Modelling Movements in Asset Prices: Monte Carlo Simulation

* The generalised Markov process
* Asset prices represented by Brownian motion
* Monte Carlo simulation
* Random number generation
* Control variate and antithetic variable techniques
* Low discrepancy sequences

Workshop: Building and Running a Monte Carlo Simulation
Modelling Movements in Asset Prices: trees

* Alternative futures
* Probabilities and pseudo probabilities
* The binomial tree
* Trinomial trees
* Trees and Monte Carlo
* Risk neutral valuation
* Valuing standard options

Workshop: Building a binomial tree for pricing and hedging
Day Four
Using Trees for Pricing Derivatives

* Early exercise and Bermudan structures
* Valuing look-back options with trees
* Deriving the ?Greeks?
* Modifications for Smile and Skew

Modelling Asset Prices in Continuous Time

* Some basic stochastic calculus and Ito's Lemma
* Normal and lognormal distributions
* Applying the Black-Scholes analysis

Workshop: Comparing Techniques
Practical Approaches to Modelling the Dynamics of the Yield Curve

* The stochastic behaviour of interest rates
* Arbitrage and no arbitrage
* Risk neutral valuation
* Spot rate models
* Sources of uncertainty and continuous time
* Forward rate models
* Derivative pricing
* Forwards and futures revisited
* Model calibration

Workshop: Implementing a Single Factor Model

About The Training Provider: London Financial Studies