Yield Curves  Construction, Modelling and Applications  Workshop
Also available as onlinecourse upon request at a reduced
fee
Duration: 2 days
 Yield Curve Construction in the New Financial Environment
 OIS Discounting
 Bootstrapping and Cubic Splining
 Blending, Interpolating and Smoothing Techniques
 Credit Spreads and Forward Credit Spreads
 The Effect of a CSA/Collateral Agreement on the Yield/Swap Curve
 CVA Charges on Corporates
 Working in a MultiCurve Environment
 Principal Components Analysis
 Using Yield Curves in Trading and Risk Management
The objective of this comprehensive and highly practical workshop is to give you an indepth understanding
of techniques for constructing yield curves and for the applications of yield curves in pricing, trading,
collateral and risk management.
In the workshop you will work handson with the presented techniques and models using current market and
credit data. You are encouraged to bring your own laptop.
We start with a discussion of how the latest financial crisis (and regulation) has forced banks to use
different yield curves for discounting collateralized and noncollateralized transactions. Also the impacts
on the yieldcurve of the CVA charges following Basel III/CRD IV are presented.
We then explain and demonstrate how bond yield curves can be estimated using the Extended NelsonSiegel
(Svensson) model which is the standard model used by both ECB and the Deutsche Bundesbank ( see link). Risk Repair has assisted both
institutions in the delopment of these models so you will get to know all the important tips and tricks
including how the yield curves may be used to identify trading opportunities in the bond market.
We also look at the standard methods for deriving yield curves such as bootstrapping the liquid swap curves
in combination with cubic splines and demonstrate how the swap curve is used for the pricing of standard
and nongeneric swaps.
The concept of OISdiscounting is presented and we discuss the differences between the Libor curves and the
OIS curves. We also give an overview of their uses in securities pricing, investment analysis and risk
management.
We further give an indepth explanation of how Libor and issuer specific curves can be constructed from
pier groups of issuers/segments and countries using a parametrized approach to model the credit spread. We
illustrate how cash flow and value projections can be made in this multicurve environment.
Finally, we explain how yield curves can be used in daytoday trading and we explain how to calculate risk
measures for hedging purposes and risk management. We show how security and portfolio cash flows can be
mapped to yield curve grid points and we explain how “Delta Vectors” and key ratios such as “Key Rate
Duration” are derived and used to control interest rate risk. We also explain how “Principal Components”
analysis can be used to decompose variations in the yield curve into independent factors and how a
“factorimmunized” portfolio can be constructed.
Day One
09.00  09.15 Welcome and Introduction
09.15  10.15 Yield Curve Construction  Fundamentals and Applications
 Yield Curves and their Applications in Finance

Building Blocks in Yield Curve Construction
 Price and yield analysis
 Spot rates and discount factors
 Continuously compounded yields
 Forward rates

Types of Yield Curves
 Simple yield curve
 The par curve
 The duration yield curve
 The Zero Curve
 Libor curves
 Current and Historical Yield curves
 Factors Explaining the Shape of the Yield Curve
10.15  12.00 Bond Yield Curve Construction and Application
 Components of Bond Yields
 The Concept of Relative Riskfree Spot Curves

Estimating and Fitting the Yield Curve
 Selecting the Bond Sample
 Toppingup if Insuficient Data
 Adjusting for Liquidity Issues
 Regression Techniques
 Using Cubic Splines
 The Extended NelsonSiegel Model (Svensson)
12.00  13.00 Lunch
13.00  14.30 Bond Credit Curve Construction and Application

The Construction and Estimation of Credit Spread Curves
 Bootstrapping the Credit Curve (Souvereigns, Supras, Institutionals, Corporates)
 Fitting and parametrizing the Credit Curve
 Calculating Forward Credit Spreads
 Probability of Credit Migration
 Calculation of Standard CVA and CVA VaR
 Using the Fitted Yield and Credit Curves to price Bonds and make Cash Flow Projections
14.30  16.30 Workshop: Participants fit Yield and Credit Curves to Current Market
Data and price Bonds of Different Credit Qualities
 Using Single and Multiple Worksheets
 Using MSAccess Database
 Using VBA Macros
 Using Forms and different Builtin Objects
Day Two
09.00  09.15 Brief recap
09.15  11.00 Constructing and Using Libor Curves

Building Blocks in Libor Curve Construction
 Deposits
 FRAs and interest rate futures
 Par swaps
 Convexity Adjustment of Futures Prices
 Construction of Swap Curves in a SingleCurve Environment

Bootstrapping
 Constructing the short end
 Extending the curve

Construction of Swaps Curves in a MultiCurve Environment
 Credit Quality
 Collateralized and nonCollateralized

Libor versus OIS Curves
 Idea and Methodology behind OIS Discounting
 The Importance of Reset Frequency (Fixing)

Interpolation and Smoothing Techniques
 Linear and nonlinear techniques
 Alternatives to the NelsonSiegel Estimation Technique
 Examples and Exercises
11.00  12.00 Workshop: Participants construct OIS/Libor Curves and apply these in the Pricing of OTC
Products
 Pricing of Standard Swaps
 Pricing of nonStandard Swaps (varying Notional, fixing in Arrears)
 Pricing of FRA's
 Pricing of more Exotic Structures
12.00  13.00 Lunch
13.00  15.00 Using Yield Curves in Trading and Risk Management
 Identifying Trading Opportunities

 Cheaprich Analysis
 Applying Confidence Bands
 Calculating the Expected Holding Period

Risk Management
 Calculating delta vectors
 Calculating key rate durations
 Decomposing yield curve variations
 Principal components analysis
 Calculating factor sensitivities
 Factorimmunization
 Selective hedging
15.00  16.30 Workshop: Participants apply all the Acquired Knowledge on Current Market Data in an Attempt
to identify Trading Possibilities and to Measure their Risks towards Various Types of Yield (and Credit
Quality) Movements
Summary, Evaluation and Termination of the Seminar
