Swaps Fundamentals

Develop an understanding of the basic financial theories and concepts relevant to swaps.

Swaps Fundamentals

There is one session available:

After a course session ends, it will be archived.
Estimated 3 weeks
1–2 hours per week
Progress at your own speed

About this course

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Swaps are the most prevalent derivatives used by corporations, and financial institutions to exchange a set of future cash flows with another set. The market participants carry them in balance sheet or off-balance sheet, and their gigantic volume has always been a point of concern for regulatory bodies and central banks. Considering that FRA is based on the exchange of one cash flow with another one, swap is set of FRAs.

In this course, we will discuss the basic financial theories and concepts relevant to swaps. The pricing of swaps will also be explained and demonstrated through many examples. We then look into Interest Rate including Forward and Overnight Index Swap (OIS) swaps, Equity, Cross-Currency, Quanto, Credit Default, and Asset Swaps.

The Credit Default swaps (“CDS”) are now extremely popular and trade billions of dollars every day. While they were originally developed to hedge the risk of fixed income products, they are now used to take a position without trading the underlying which can be a particular bond of a corporation or a country. Interestingly, the size of a particular CDS can many times be larger than the size of the underlying because they are cash-settled. Therefore, we will spend a good portion of our time on this subject.

Credit Default Swaps (“CDS”) allow investors to swap the credit risk of a corporation, index, or a country with other investors. CDS market started in 1990’s and drastically grew until 2007 global crisis to a $60 trillion market. For comparison, the global equity and bond markets are about $80 and $90 trillion respectively. Considering the important role that CDS played in shaping the global crisis of 2007 and also the large trading loss at JP Morgan, the governments introduced more restrictions on the CDS market. CDS which were mainly traded as OTC products between brokers and clients, were then transformed to become more standard contracts clearing via central clearing counterparties.

At a glance

  • Institution: NYIF
  • Subject: Economics & Finance
  • Level: Introductory
  • Prerequisites:

    • Intermediate MS Excel skills (use solver, etc.)

    • Basic probability

    • Basic calculus

    • Some knowledge of equity markets

    Knowledge of fixed income basics

  • Language: English
  • Associated programs:

What you'll learn

Skip What you'll learn
  • Understand Swaps and their applications in finance.

  • Learn how to do valuation of swaps as sum of the present value of two legs of swap.

  • Understand Interest rate swap, swap spread, payouts of two legs.

  • Understand the crisis of 2008, the issue with Libor, and switch from Libor based swaps to OIS swaps.

  • Understand equity swaps, issues with cash-settled swaps, and a glance at Quanto swaps.

Module 01: Swap Fundamentals

Module 02: Interest Rate Swaps: Basics

Module 03: Interest Rate Swaps: Advanced Topics

Module 04: Equity Swaps

Module 05: Cross-Currency Swaps

About the instructors