Structured Products - Super Computer Consulting, Inc

Structured Products : Derivative Instruments and Risk Management MasterClass A special course on futures, options, credit derivatives and risk management Royal Orchid Sheraton, Bangkok 29th & 30th November 2004

“Opportunities are usually disguised as hard work, so most people don't recognise them” -Ann Landers

The biggest myth about derivatives is that they are purely speculative, highly leveraged instruments that only large multinational corporations and large banks have use for. Some have even wrongfully labeled financial derivatives as "the latest risk-management fad. Debunk this myth!".

Your Course Trainer Izzy Nelken President Super Computer Consulting, Inc., USA

Books authored • Handbook of Hybrid Instruments: Convertible Bonds, Preferred Shares, Lyons, Elks, Decs and Other Mandatory Convertible Notes (with CD-ROM) • Pricing, Hedging, and Trading Exotic Options: Understand the Intricacies of Exotic Options and How to Use Them to Maximum Advantage (Irwin Library of Investment & Finance) • Implementing Credit Derivatives: Strategies and Techniques for Using Credit Derivatives in Risk Management (Irwin Library of Investment and Finance) • Volatility in the Capital Markets: State Of-The-Art Techniques for Modeling, Managing and Trading Volatility (State of-the-Art Techniques for Modeling, Managing and Trading Volatility) • The Handbook of Exotic Options: Instruments, Analysis, and Application

Gain value from this unequalled interactive event by securing expert advice on these vital issues • Acquiring a thorough understanding to the worldwide derivatives markets in a nononsense "hands on" fashion • Evaluating exchange traded vs. over the counter derivatives • Measuring forwards, futures and options • Identifying foreign exchange products • Discussing interest rate swaps • Exploring credit derivatives • Appreciating the respective roles of the buyer and seller • Addressing best practice techniques for volatility estimation • Assessing and mastering risk management techniques • Building a successful operation and recognising pitfalls to avoid

• Option Embedded Bonds: Price Analysis, Credit Risk, & Investment Strategies

marcus evans training courses are thoroughly researched and structured to provide intense and intimate practical training applicable to your organisation. Benefits include • • • • •

Strictly limited seats Pre-course questionnaires In-depth tailored programme to address market concerns Diverse real life case examples Comprehensive course documentation

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Day 1

Monday 29th November 2004 Derivatives markets are exploding! The latest BIS (Bank for International Settlements) reports show that OTC (over the counter) derivatives markets have a notional of more than $200 trillion US dollars. This event covers many kinds of derivatives. These include derivatives on: interest rates, foreign currency, equity, commodity, credit and even weather and inflation derivatives. We discuss their use from a practical point of view and their pricing from an intuitive point of view. The course also discusses risk management. Delegates will learn the key concepts and retain them through the use of many illustrative examples. While the speaker is a lecturer at the Program of Financial Mathematics at Mathematics Department of The University of Chicago, the focus of the seminar is always on the practical. Rather than reciting equations, we will talk about the practical issues and mention many stories from the field. Introduction and overview of the training • Welcome and Introductions • Participants discuss course objectives and requirements

Session One - Introduction to Derivative Instruments and Markets • • • • • • • • • •

Evolution and development of the derivative markets Derivatives defined: characteristics of derivative instruments The range and diversity of the derivatives markets Linear and non-linear derivatives Outright (forwards, futures and swaps) and option derivatives Over-the-counter vs exchange traded derivatives OTC derivatives documentation and legal issues Applications of derivatives: risk transfer An overview of applications in trading, hedging and arbitrage Benefits and shortcomings of derivatives

Session Two - Linear Derivatives: Forward and Futures Markets • Forward contracts - Definitions and nomenclature - market practices - Generic characteristics of forward contracts - Pricing principles of forward/futures contracts - Arbitrage-free pricing - Backwardations and the breakdown of arbitrage-free valuation - Credit risk exposure and forward contracts • Futures contracts • The mechanics of future contracts and futures markets • The role of the clearing house • Margining: definition and operation • Credit risk and futures contracts • Interest rate forward contracts and futures • Forward foreign exchange - Outrights and FX swaps - Pricing using interest rate differentials - Calculating outright forward FX rates - Cross rate forwards - Determination of synthetic interest rates using forwards - Non-deliverable forwards (NDFs) • Equity - Index and single stock futures - Pricing and valuation - Cost of carry; stock borrowing risks - Fixed and floating dividends - Applications: trading, hedging and tactical asset allocation

Session Three - Evaluating the Credit Derivatives Market and the Rationale for its Development • Current and future potential of credit derivatives market • Assessing the size of the market in terms of capacity and liquidity • The size of the market and the distribution among product lines and underlying instruments • Difficulties in developing a true "two way" market • Evaluating the potential for a secondary market in credit derivatives • How the Euro will impact on the credit derivatives market • Credit derivatives: the US experience • The recent credit crunch and its implications on the market

Session Four Credit Derivatives • Introduction to credit derivatives - Evolution and development of the credit derivatives market • Components of credit risk - Default probability - Recovery rates - Credit migration • Credit default swaps - Definitions and nomenclature - Credit events - definitions - Deliverable obligations - Settlement mechanisms - Documentation - Regulatory treatment of credit derivatives • Benefits and applications of credit default swaps - Credit portfolio management - Hedging credit risk; increasing credit capacity - Credit trading - Yield enhancement; leverage - Economic and regulatory capital management - Synthetic asset creation • Pricing and valuation of credit derivatives - Default probabilities - Recovery rates - Arbitrage based approaches (asset swap pricing) - Estimation of default probabilities - Merton, KMV models - Implied default probabilities - Credit migration; transition matrices - Correlation effects; joint transition matrices - Structural and reduced form credit models

Program schedule for Day One & Two 08:30 09:00 10:30 - 10:50 12:30 13:30 15:30 - 15:50 17:00

Registration and Coffee Morning Session Begins Refreshments & Networking Break Networking Luncheon Afternoon Session Begins Refreshments & Networking Break Course Ends

Register Now Contact the marcus evans Marketing Team Tel: +603 2723 6611 Fax: +603 2723 6622 Email: [email protected] www.marcusevans.com

Day 2

Tuesday, 30th November 2004 Session One - Interest Rate Risk Identification & Measurement Financial vs. Non-Financial Firms, Arbitrage, Speculation, and Hedging • • • • • • • •

Maturity Gaps and Time to Re-pricing Mathematics of Duration and Convexity Macaulay Duration, Modified Duration, DV01 Statistics Immunisation Strategies Duration as Benchmark for Portfolio Performance Potential Gains from Increasing Convexity The case of the Century Bond Value at Risk Analysis

Session Two - Interest Rate Models: How Are They Used in Practice • Choice of Models - Why can't they come up with a single "best" model? - Speed and simplicity vs. accuracy - What do you want the model to do? • Should you purchase software or develop it internally? • The calibration of a model - Some parameters change in "real time" while others are changed once a day or even once a week - How to estimate unobservable parameters

Session Three - Volatility State of the art techniques in volatility estimation • Historical volatility - What term should be used - What historical period should be used • Implied volatility - What causes volatility - "Volatility days" • Different methods of volatility estimation - Using closing prices - Using daily high and low prices - Using high, low, open and close prices - The "Parkinson" rule - Using exponential moving averages • Volatility smile and smirk (statistical study, before '87 vs. after '87) • Pricing using a binomial tree (review) • Tree with a volatility term structure • Implied volatility trees • Volatility insensitive products

Session Four - Developing a Framework for Accurate Risk measurement Sensitivity analysis ("Greeks"), Scenario analysis and Value-at-risk • How to quantify the risk of an option - Delta: sensitivity to the asset price - Gamma: sensitivity of delta to the asset price - Vega: sensitivity to volatility - Theta: time premium - Rho: sensitivity to interest rates • Scenario analysis - Which scenarios should you look at - Visualisation and graphics • The Group of Thirty (G30) recommendations • Value at Risk (VAR) - Introduction - Several methods used (e.g. RiskMetrics) - Advantages and critiques

About your Course Trainer Izzy Nelken is an International expert on structured products, swaps, hybrids and derivatives. president of Super Computer Consulting, Inc. in Mundelein, Illinois. Super Computer Consulting, Inc. specialises in exotic options, convertible bonds and other complex derivatives. Izzy holds a Ph.D. in computer science from Rutgers University and was on the faculty at the University of Toronto. In addition to his work with Super Computer Consulting, Izzy teaches numerous courses and seminars around the world on a variety of topics including: credit risk management and credit derivatives exotic options, financial engineering, volatility and correlation and hybrid securities. He is also a lecturer in the prestigious mathematics department at the University of Chicago. However Izzy's seminars are known for being non-mathematical. Instead they combine cutting edge analytics with real world applications and intuitive examples. Izzy is the editor and co-author of three previous books covering exotic options, option embedded bonds and volatility in the capital markets and is also the sole author of a book on implementing credit derivatives.

Who should attend • Derivatives traders, brokers and dealers • Financial engineers • Risk managers • Trading risk controllers • Investment managers • Quantitative analysts • Structured finance specialists • Regulators and consultants and advisors involved in providing services to traders or end users • Derivative sales and distribution staff • Corporate treasurers • Financial regulators • Structured finance & Product development specialists From across the industries such as: • Banks • Insurance • Securities • Stock Exchanges • Regulatory bodies • Financial services consultants

Why you can not miss this event This intense, two day program is designed to take you ground up into the world of derivative instruments. Simple options as well as option strategies (from the simple to the complex), pricing and risk management will be covered. In particular, Dr. Nelken will use many spreadsheet examples as well as "stories from the field" to illustrate the relevant points. If you've used options in the past, are using them now or may use them in the future, this course is for you. As many aspects of derivatives will be covered, it is imperative that you become familiar with this material whether you are an investor, a trader, a risk manager or a regulator

I would like to thank everyone who has helped with the research and organisation of this event, particularly the trainer, for his relentless commitment and support. Manpreet Arora Conference Producer

Conclusions & Questions End of training marcus evans reserves the right to change the venue of, or speakers at the training course should circumstances require. © marcus evans

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