1. Patrick Hagan on
Fixed Income
London 23 & 24 February 2012
New York 27 & 28 February 2012
Course Highlights:
Using the SABR model to manage volatility smiles and hedging stability
Market technicals: money vs. scrip, leverage, cost of funds and the
credit crisis
Managing exotic risks: choosing a model and the five main
interest rate risks
Practical pricing of exotics: calibration strategies and instruments
Adjusters and risk mitigation
Pricing and hedging callable range notes and accrual swaps
www.incisive-training.com/patrickhagan
2. The course
his course looks at Fixed Income in today’s investment banks. He has designed this course
T volatile market conditions. It provides a
practical and technical approach to managing
to address the industry's need to adapt its
approach to Fixed. This masterclass will offer
the various risks involved in Fixed Income, with practical insights whilst remaining mindful of
content driven by real-world implementation recent market turbulence and change.
strategies.
The main motivation for delegates attending
The agenda addresses the practical pricing this course will be to learn the correct
issues of Fixed Income and cutting-edge application of models and to execute more
hedging techniques. effective Fixed Income strategies.
The course will be led by Patrick Hagan, a The course will address how to develop,
leading expert in the area of Fixed Income calibrate and validate models in order to
modelling with a wealth of experience in minimize and manage model risk and
building trading models at many international guarantee robustness.
Who should attend? Key Learning points
This course has been designed for those Assess the use and application of the
working in investment banks, hedge funds, SABR model
insurance companies, consultancies and Develop your understanding of the
regulatory bodies with the following job titles: practical pricing of exotics
Risk managers
Risk analysts and controllers Explore the strengths, weaknesses and
Derivatives analysts uses of HJM models, BGM models,
Quantitative analysts LMM models, short-rate models and
Treasurers Markovian models
Financial engineers Investigate mis-hedging, mis-pricing
Market risk managers and the need for risk migrators
About the tutor
Patrick S. Hagan, structuring and managing derivatives. Before
Head of Quantitative Analytics for entering finance, he helped design chemical
JP Morgan’s Chief Investment Office reactors for Exxon, was a scientist for Los
Alamos’s Theory and Computer Research &
Patrick received his BS and Ph.D. in Applied Applications groups and was the Deputy Director
Mathematics from the California Institute of for the Los Alamos Center for Nonlinear Science.
Technology. Before joining JP Morgan he worked He is a former Director of the US Industrial Study
for several banks and third party software Group, has taught at Stanford University, the
providers designing trading systems, as well as California Institute of Technology and the Courant
developing the component models, calibration Institute (NYU) and is an Adjunct Professor at
methods and numerical algorithms for pricing, several other institutions.
3. Patrick Hagan on Fixed Income and Credit
London 23 & 24 February 2012 New York 27 & 28 February 2012
Day one Day two
09.00 Registration and coffee 09.00 Registration and coffee
09.30 Basic fixed income instruments 09.30 Practical pricing of exotics
Basics: discount factors, FRAs, swaps, and
other delta products LGM model
Curve stripping, bucket deltas, and managing Callable swaps (Bermudans)
IR risks Calibration strategies and the selection of
Martingales & the fundamental theorem calibration instruments
Vanilla options (caps, floors, and swaptions) Connection between calibration
& Black’s model instruments and vega risks
Vol matrices, bucket vegas, and managing Explicit calibrations for Bermudan
vol risks Predicted vs. actual vol matrices for
Smiles, local volatility models, and equivalent different calibrations
volatilities
Mishedging, and the development of the Dependence of Bermudan price on
stochastic vol model choice of calibration instruments
Using the SABR model to manage volatility Dependence of hedges on calibration
smiles, hedging stability choices
Levy based models for managing volatility Conclusions
surfaces
11.00 Morning Break 11.00 Morning break
11.30 Speed networking: a chance to meet 11.45 Adjusters and risk migration
each delegate and share backgrounds Mis-hedging, mis-pricing, and the need for
11.45 Intermission: market technicals risk migrators
money vs. scrip Price sharpening via adjusters
holiday calendars, business day rules, and Example: correcting a Bermudan calibrated
schedule generation to ATM swaptions
day count fractions Example: correcting a Bermudan calibrated
ref rates & basis spreads to caplets
leverage, cost of funds, and the credit crisis
13.15 Lunch
13.15 Lunch
14.15 Managing exotics 14.15 Pricing/hedging callable range notes &
Three elements to modern pricing: model, accrual swaps
calibration, and evaluation Definition of the deal
Choosing a model and the five main interest Mismatched payoffs & convexity corrections
rate risks Using replication to price non-callable range
HJM models – strengths, weaknesses, usage notes
BGM/LMM models – strengths, LGM model and potential calibration
weaknesses, usage strategies
Short rate models – strengths, weaknesses, Potential mishedging of swaption or caplet
usage risks
Markovian models – strengths, weaknesses, Using internal adjusters to correct prices and
usage hedges
15.45 Afternoon break 15.45 Afternoon break
16.15 Review of day’s content
Technical review 16.15 Review of course content
Discussion Technical review
Common problems faced Discussion
Strategies to overcome common mistakes Action points
17.00 End of day one 16.45 End of the course
www.incisive-training.com/patrickhagan
