Fixed Income and Debt

Fixed Income Analysis - Part 5



This eCourse consists of two modules. Module 1 focuses on the use of interest rate swaps to hedge bond portfolios. Swap contracts can change the cash flow characteristics of an asset, thereby reducing or eliminating the interest rate exposure for that particular asset. The module examines the use of par swap contracts as the underlying hedging instrument, the features and characteristics of such hedges, and demonstrates how to implement a swap-based hedging strategy.

Module 2 examines RV trading strategies within a market (but excludes asset allocation strategies between markets), where offsetting (usually long/short) positions are taken in different assets. Trades are not dependent on the general direction of underlying markets. The module also focuses on trades that exploit some economic relationship between the different assets. This may be evidenced by historic correlation, but may also be the result of a trader's investigation. Finally in this tutorial, we outline some of the risks and pitfalls for RV traders. A case-study of the LTCM hedge fund is included as a reminder of how these dangers are realized in practice.


On completion of this course, you will be able to:
- Identify the reasons for, and the economic rationale of, interest rate hedges using par swap contracts
- Design and implement a specific swap-based bond hedging strategy
- Describe some of the relative value trading strategies used in various asset markets
- Outline the potential difficulties and risks of a relative value trading strategy


Module 1: Bond Hedging with Swaps
Topic 1: Basics of Bond Hedging with Swaps
Topic 2: Structuring Swap-based Bond Hedges

Module 2: Relative Value Trading - Strategies & Risks
Topic 1: Relative Value Strategies
Topic 2: Difficulties & Risks in Relative Value Trading


SFC:2.00, PWMA:2.00
Staff of Corporate Member: HK$620
Non-Member: HK$940
All Member: HK$620