Commodities, Derivatives and Structured Products

Interest Rate Options - Part 2


This eCourse consists of three modules. Module 1 looks at the pricing of caps, floors, and swaptions using Black-Scholes and other iterative approaches.

Module 2 looks at the main applications of interest rates options and how they are embedded into structured notes.

Module 3 looks at the main regulatory and market infrastructure changes to the interest rate derivative markets, especially the market for interest rate options such as swaptions.


On completion of this course, you will be able to:
- Identify the use of the Black-Scholes and Black 76 model in pricing interest rate options as well as the key shortcomings of these approaches
- The pricing of caps and floors using Black-Scholes and the pricing of swaptions in Excel
- Identify the main applications of capped FRNs and their interest rate sensitivity
- Recall how caps are embedded into CMO-based FRNs
- Recognise the use of binary options in range index binary (RIB) notes
- Identify other exotic interest rate options and their applications
- Recognise the convergence between OTC derivatives such as swaptions and their exchange-traded equivalents
- Recall how the clearing of swaps has become mandatory and is also recommended for swaptions contracts
- Identify the implications for swaps of the move from uncollateralized benchmarks such as LIBOR to collateralized rate such as SOFR
- Recognise how futures bundles and options thereon can be used to replicate swaps and swaptions respectively


Module 1: Interest Rate Options – Pricing
Topic 1: Pricing Models
Topic 2: Pricing Caps, Floors, & Swaptions

Module 2: Interest Rate Options - Applications
Topic 1: FRNs With Caps & Floors
Topic 2: Range Index Binary (RIB) Notes
Topic 3: CMO FRNs & Other Exotic IROs

Module 3: Interest Rate Options – Market Considerations
Topic 1: Convergence of OTC & Exchange-Traded Derivatives
Topic 2: Clearing
Topic 3: Curve Changes
Topic 4: Other Issues


Relevant Subject
Type 2 - Dealing in futures contracts
Type 5 - Advising on futures contracts
SFC:2.00, PWMA:2.00
All Member: HK$610
Staff of Corporate Member: HK$610
Non-Member: HK$890