Pricing IRS – Module I – Term Structures
About the Course
This course is part one of a three module course on pricing interest rate and cross currency swaps and interest rate options. This module focuses on the interest rate term structure, which is a key element in the pricing and valuation process.
The course begins by defining the various types of interest rates. It then gives a brief overview of the variations of the swap contract. This is followed by a summary and flowchart of the pricing process for interest rate swaps. Finally, it walks through a step-by-step approach of deriving zero rate and forward rate term structures.
After taking this course you will be able to:
- Define cash flows
- Understand why cash flows need to be discounted
- Define spot, forward and short rates
- Understand how spot, forward and short rates are linked
- Define yield to maturity
- Understand what a term structure of interest rates is
- Define forward rate agreements and forward contracts
- List and define the various types of swaps
- Outline a process for pricing interest rate swaps
- Derive a zero curve and forward curve term structure from observable market rates
The candidate should be comfortable with basic mathematics, statistics, probability and EXCEL.
This course is for beginners in the finance field and also for individuals involved in pricing and valuation of interest rate sensitive instruments.