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26.625 Kč + DPH

The nature and source of interest rate risk within companies and banks

The hedging decision process including a look at how real companies decide how to hedge

How to measure interest rate risk and quantify it using risk metrics and gap analysis

Creating a risk management policy

The spectrum of interest rate hedging products available to companies and their pros and cons

The hedge lifecycle and the evolution of hedge valuation and break costs

The futures of IBOR reference rates

On day one, we start with the basics of interest rate risk. How does it arise? How do we measure it? The workshop will look at how to quantify interest rate risk and the different measures popular with companies. During this section we will talk about how companies make the hedging decision and how they create a risk management policy. We also discuss dealing with banks - what's in it for them and how do they manage the risk?

On day two we move our focus to the hedging products themselves with a detailed analysis of the different products available and what each one offers as a hedge. Participants will learn the products in an intuitive way but also be taught the important pricing and risk calculations for each one. The products will be assessed in aggregate and we will discuss the role of each one in a diversified hedging portfolio. Once the products have been understood, the next section deals with how the valuation of the trade evolves over time, looking at the importance of yield curve shape in the valuation and future break costs. Next we look at the future of IBOR reference rates and the nature of their replacements.

The workshop finishes with a session analysing some real company hedging decisions and policies, bringing together all the knowledge gained over the two days to critique the approach taken by these companies to the job of interest rate risk management.

Bank traders, salespeople, structurers

Bank market risk managers, middle office and operations professionals

Investors - institutional investors, fund managers, private traders

Company treasury managers and staff, accountants, risk managers

Wednesday, October 6

- How does interest rate risk arise within a company?
- How are companies financed?
- Equity versus debt
- Why do commercial banks lend on a variable rate basis?
- Why do companies usually want to pay a fixed rate?

- The market for fixed-rate loans
- Why are fixed-rate loans so rare?
- Is there still interest rate risk if you have a fixed rate loan?

- The corporate hedging decision - inside the mind of the corporate treasurer
- How is risk identified and quantified?
- What are the pros and cons of hedging?
- How much risk do we hedge?
- How does a typical company make the hedging decision?
- Comparing to peers, does it matter what they do?

- Dealing with banks
- What do banks get out of it?
- What happens to the risk once the company has hedged?
- Understanding how banks profitably seek and manage risk on hedging deals

*Corporate financing decisions**Hedging discussion*

*Exercises:*

- How do we measure interest rate risk?
- Description of quantitative measures of interest rate risk
- Duration and DV01
- Duration gap analysis

- How can we forecast cash flows and expected debt requirements?
- Cash flow statement forecasting
- Stress-testing our cash flow forecasts

- Macro hedging
- Creating a risk management policy

- Managing the structural impact of low/high interest rates
*Interest rate exposure calculation**Building a simple cash flow statement forecast*

*Exercises:*

- What are the hedging products available?
- Pros and cons of different hedging choices
- Plotting the future scenarios
- Linear products versus option products, how do we strike the right balance?
- When is it a hedge and when is it not?
- Balancing the floating-rate and fixed-rate mix

- Using FRAs and swaps to hedge
- Understanding the pricing and the settlement of the hedging product
- Aligning dates and amounts

Thursday, October 7

- Using an option-based hedge
- Paying a premium or constructing a zero-cost combination?
- Using exotic options - how do we balance flexibility and complexity?

- Flexible hedges
- How can we construct a hedge for a variable debt amount?
- Using variable notional swaps - how are they constructed and priced?

- Bringing the products together
- Examination of the full spectrum of interest rate hedges available

- Other hedging issues
- Appropriateness and suitability rules
- Analysis of previous bank mis-selling cases

- Hedging accounting under IFRS9 - why does it matter?
- Reporting of hedge P/L

- Appropriateness and suitability rules
*Liability hedging using derivatives**Using full and partial hedges*

*Exercises:*

- How to deal with changing circumstances?
- Using rolling hedges
- Pre-hedging known future exposures

- Evolution of hedge P/L
- What effect does the shape of the yield curve have?
- Dealing with curve roll down and negative carry

- Breaking the hedge - what happens when the hedge is no longer needed?
- How do banks compute break costs?

*Exercise: effect of yield curve shape on carry and break costs*

- What is the future of IBOR reference rates?
- If they are being replaced, what are the replacement rates?
- The new Risk-Free Rates (RFRs)

- How do the new RFR rates work?
- How is interest calculated?
- How do we create a term rate to replace IBOR?

- How will the replacement of IBOR effect corporate hedging?
- Timing issues between loan and derivative hedging rates
- Legal and accounting risks

*Interest rate calculations using RFRs**Dealing with legacy IBOR contracts*

*Exercises:*

*In this session, we analyse some real company interest rate hedging decisions and hedging policies. Participants will be given some company annual reports and asked to find evidence of interest rate risk calculations and risk management policies. Participants will be invited to draw conclusions on the logic behind the hedging policy and the hedging products chosen.*

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