This course examines yield curves: their shapes, uses and derivation. The course can be designed for the cash and/or derivative markets. Construction of curves begins with the benchmark government curve followed by the derivation of the spot and forward curve. The sources of the data (e.g. the government or the swap curve) and when to use the respective data are discussed. More sophisticated techniques for interpolation are explored. This is followed by a discussion on credit and the spreads between corporate bonds the government benchmarks. The connection between spreads and credit rating is explored.

Objectives

By the end of the program, the course participant will be able to:

• Distinguish between par, spot and forward curves
• Derive the spot and forward curves from the par curve
• Derive discount factors from spot yields
• Construct a master curve
• Assess the richness/cheapness of fixed income securities
• Price and revalue derivative products
• Identify opportunities to arbitrage the curve
• Highlight the strengths and weaknesses of yield curve interpolation:
  • Linear
  • Log linear
  • Polynomial
  • Cubic splines

This course is designed for people whose jobs function:

• Directly interacts with the cash and derivatives fixed income markets such as sales and trading
• Supports a cash and derivatives fixed income desk such as finance and back office
• Has responsibilities that include examining and compliance for regulatory purposes