MONEY, BANKING AND

FINANCIAL MARKETS
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AN 18-HOUR COURSE
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Six 3-hour sessions

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Prepared by
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Petros Geroulanos
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EPIGON Training & Development

SW10 9JZ London
United Kingdom

E-mail: epigon@epigon.co.uk
Web: www.epigon.co.uk
Money, Banking and Financial Markets
An 18-hour course, six 3-hour sessions

Course Description:
Over the last years, Money, Banking and Financial Markets have been in turmoil.
Some of its high-profile losses have led to questioning the business model and
investment banking as a whole. The introduction of Central Bank Digital Currency is
on the cards.

This is an interactive program on Money, Banking and Financial Markets looks at the
merits, and downsides. It provides a bird’s eye view on how banks operate in Capital

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Markets, Money Markets and Foreign Exchange and their derivatives. Finally, we focus

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on Futures and Options.
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By participating you will understand the role of money to determine cash flows, how
banks think, what makes them tick and how they see themselves as allocators of
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capital, problem solvers and risk managers through financial markets. You will
recognise how they meet the needs of investors and borrowers. The section on smart
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money demonstrates how they anticipated the flow of capital and hence how they
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make money and generate wealth.

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At the end, you will have the necessary building blocks to understand the different
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approaches leaving you with a comprehensive overview. You will also understand the
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spirit of trading and investment banking.

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The speaker shares the concepts using Socratic questioning techniques, story telling
and exercises that have lead market participants from tears to success with great
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clarity and charisma.

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Course presenter and facilitator:

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Lic.oec. HSG Petros Geroulanos, MNLP, EPIGON Training and Development, United
Kingdom.
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Training Objectives:
On completion, delegates will:
1. Explain money and its purpose.
2. List important macroeconomic indicators.
3. Distinguish between money and capital markets.
4. List different ways of corporate funding.
5. Describe the functioning of the banking system.
6. Compare primary and secondary markets.
7. Describe the main risks s contained in interest rates.

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8. Explain the workings of a central bank.

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9. Understand the segments and products of the financial markets.
10. Understand the importance of allocation of capital through different asset

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classes.
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11. Understand how investment banks

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a. Identify the needs of their clients.
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b. Solve problems of their clients.

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c. Create higher returns.

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d. Manage risk. n.
e. Create desired risk profiles.
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f. Make money for themselves.

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12. Describe the main regulatory requirements of banks.

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13. Draw the cashflows of different financial market instruments.

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14. Understanding the building blocks of futures and options.

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15. Price options using a binomial model.

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16. Explain how financial markets are integrated.

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Course Program
Session 1 – Full cohort
Introduction:
 Setting the frame
 Session outline
 Introductions
 Expectations

Money:
 Definition
 Purpose

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

Creation
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 Money supply

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Macroeconomic indicators and what influences markets:
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 Demographics
Purchasing Power Parity lo
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 Inflation
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 GDP

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Jobs
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 Commodities
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 Other
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An overview on financial markets:

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 The Importance of cash flows as the underlying principle of any financial instrument
Money markets versus capital markets
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Session 2 – in groups
The Business Model: The macroeconomic allocation of capital
 The structure of an investment bank
 The players in investment banking and corporate finance
 The role of banks as intermediaries between borrowers and investors
 The interplay between origination, sales and trading
 Primary and secondary markets
 Syndication of new issues
 Asset classes

Banking:
 The balance sheet of a bank

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Types of banks

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 Business models
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Capital markets instruments:

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 Equity financing
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 Loan financing
 Securitisation
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 Debt financing
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The balance sheet of a bank:

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 Assets, liabilities and capital

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Deposit insurance guarantee

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Basel Framework
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Asset securitisation
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 Collateralised Mortgage Obligations (CMO)

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 Subprime, contagion and the global financial crisis

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Session 3 – in groups

Banking regulation:
 Deposit insurance guarantee
 Basel Framework
o Capital adequacy requirements (CAR)
o Liquidity reserve requirements
 Know your customer (KYC), FATCA, MIFID-2 and automated exchange of
information
 Anti-money laundering regulations
 Consumer protection
 Restrictions on activities, sanctions

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Bond markets:

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 Domestic versus international bond markets (Eurobonds)
 Issuing procedures

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 Terminology in the US primary market (WI, On-the-run, off-the-run)
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Time value of money:

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Value of money over time

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 Reasons for the change of value of money over time

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 A definition of interest rates

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Financial arithmetic:
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 Money market formulas (Simple interest)
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 Capital market formulas (Compound interest)

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 Market conventions
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Session 4 – in groups
Financial arithmetic (continued):
 Money market formulas (Simple interest)
 Capital market formulas (Compound interest)
 Market conventions

Money market instruments:

 Discounted versus interest-bearing instruments
 Forward interest rates
 Repurchase agreements (Repo’s)

The fundamentals of bond pricing:

Annual bond pricing

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 Accrued Interest
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Bond risk (time permitting):

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 Duration
Convexity
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Repurchase agreements (Repo):

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 Sell-Buy back
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 Classic repo

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 Securities lending
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Session 5 – in groups
Background to futures and options:
 The history of futures options
 The two-arrive contract
 The CBoT and CME
 Margining and gearing
 Digitalisation
 From clearing house to centralised counterparties (CCP)

Futures Pricing (Cash and carry):

 Commodity futures
 Carry basis (cost-benefit)

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Options:

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Long call
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 Short call

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 Long put
 Short put
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Option based structured products

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 Capital protection products
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Option pricing

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 Manual pricing of an option using a binomial model

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Expanding to standard distribution (Black-Scholes model)

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 Main pricing determinants n.

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Session 6 – full cohort
Option strategies (edit document):
 Straddles
 Bull and bear spreads
 Strangles
 Butterflies
 (Condor)

Put-call parity:
 Creating synthetic futures
 Arbitrage possibilities

Greeks – the main risk factors

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Theta and the time decay of the option price

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The Spot, Forward and Option arbitrage triangle:

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 Cost of carry
 Put-call parity
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 Volatility
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Dynamic option trading:
The volatility and direction matrix
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Adjusting an existing position to a change in market view

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Course summary:

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Bring all products together again
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Biography
Petros Geroulanos, lic.oec. HSG, Assoc.CIPD, MNLP
Summary:
 Director of EPIGON LTD
 Subject matter expert at SKEMA Business School
 Leadership mentor
Current focus:
 Financial Markets Training
 FinTech & Cryptocurrencies
 Digital Transformation
 Data Monetisation

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 Digitalising Business Models

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Petros is the director of EPIGON LTD based in London offering executive training,
coaching, mentoring and development services. With 35 years of professional

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experience in trading, sales and product development, he has been involved in
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training executives from over 400 institutions mainly in the finance industry. Until
2022, he ran EPIGON Capital as head derivatives trader.
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He has helped tens of thousands of participants originating from more than 100
countries through his trainings and conducted workshops in more than 30
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countries in Europe, North America, Asia, the Middle East and Africa.
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Petros acted for two years as Executive Director at the Singaporean Fintech
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company Monet Pte Ltd specialising in financial technology solutions. Before, he
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was the Chairman of EPIGON Marketing AG, and Managing Director of EPIGON
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Energy GmbH until the end of 2020. There he actively promoted geothermal
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power projects amongst other renewables. As the chairman and CEO of EPIGON
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Marketing AG he successfully launched a cigarette filter reducing toxic gases that

smokers inhale. As former head of VEGA Structured Finance GmbH in Stuttgart,
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Germany, he introduced default-free ABS, ABCP to medium-sized corporates and

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helped them offload their NPL transactions.

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His professional experience commenced with Swiss Bank Corporation (today UBS)
and Union Discount PLC with postings first in Zurich and then London. There, he
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was engaged in trading, selling, structuring and managing the risks of FX, Equity
Exotic and Fixed Income Derivative Products as well as their underlying cash
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instruments. He was a debt originator servicing AAA issuers.

In 2014, he recognised the revolutionary character of FinTech and Cryptocurrencies

as parts of his business were directly affected. He researched the impact that the
technological progress will bring. Whilst restructuring his own business in
Switzerland, he used his charisma and experience to explain the changes that have
already taken place. Ever since, he continuously questions the status quo of
businesses and innovates the business models to make them future-proof. This
resulted in conducting tailored FinTech trainings for commercial and universals

10
banks in EMEA, the USA, Scandinavia and Southeast Asia. He also advises
regulators, FinTechs, banks and technology companies.

Now, he is working as senior executive leadership coach and inspiring mentor.

Petros is a lecturer as a subject matter expert at SKEMA Business School in Paris.

His M.Sc. program on Financial Markets and Investments improved its world-wide
ranking by the Financial Times from 37th when he joined in 2013 to top 3rd in 2022.
Previously, he has been a visiting lecturer at Cass Business School at City University
in London and EMLV in Paris.

He has published more than 400 articles in the Swiss media and co-authored two
books and created the first interactive training programme on financial markets,

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bonds, and swaps. He is a certified NLP Master Practitioner, certified
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Hypnotherapist, and a Master of TimeLine Therapy™. He is a recognised HR
professional and trainer by the CIPD and holds a degree in Economics from the

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prestigious University of St. Gallen.
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He speaks four languages fluently including English, German, Swiss German, Greek
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and French. Follow Petros Geroulanos on LinkedIn and visit www.epigon.co.uk and
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www.mindmanagementcirle.com.
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 D

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Your partner in training
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Experiential learning
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Petros Geroulanos
EPIGON LTD
London SW10 9JZ
United Kingdom

E-mail: petros@epigon.co.uk
Web: www.epigon.co.uk

12
Description
EPIGON LTD is a leading provider of training and development services. EPIGON
stands for distributing knowledge across the world. It was founded in 1995 in
London to offer effective learning through experiential training interventions on an
international scale. Today, EPIGON is active in more than 7 countries and trainings
are conducted both virtual and in-person all over the world. Furthermore, the
executive coaching and mentoring part helps teams and their member reach their
objectives.

Areas of expertise
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EPIGON aims to provide executives with practical skills in Financial Training and
Personal Development to succeed in today’s business environment.

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Financial Training covers the financial market instruments and concentrates on

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providing in-depth knowledge of the cash and derivative products. We use the
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building block approach to understand the relevant details and then bring back the
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pieces to create a sensible picture. The interrelation and interdependence of these
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instruments will be highlighted and emphasised. Jargon is explained to

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completely understand the product or instrument. Pricing and trading strategies
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are emphasised as well as the regulatory environment. The whole development is

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put into a historical context to understand the market development.

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For more information visit epigon.co.uk.

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Personal Development involves developing the professional skills required to

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succeed in the job. It may cover executive leadership coaching, mentoring or

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training. We use state of the art mind management skills to consistently produce
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outstanding results improving effectiveness and efficiency. We also support

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executives working in organisational transformation.

For more information visit mindmanagementcircle.com

You can choose from the formats below

 Live in-person or remote  Webinars
 Pre-recorded courses  Keynote speeches
 High-capacity events

13
A selection of popular training courses
Financial Skills Training:
 Advanced bonds, swaps, and other fixed income applications
 Applications of data analytics in banking for the C-suite
 Basel Framework: Capital adequacy requirement and liquidity management
 Behavioural finance
 Blockchain and distributed ledger technology (DLT)
 Bonds and derivatives MasterClass
 Bond trading and hedging strategies
 Bonds and fixed income boot camp
 Bonds and fixed income markets
 Bond pricing and credit risk measures
 Bond pricing and market risk measures

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 Business model innovation

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 Capital markets
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 Central Bank Digital Currencies
Cryptocurrencies

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
 Currency derivatives
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 Currency trading
 Currency, interest rate and equity and commodity options
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 Data analytics in banking
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Derivatives pricing
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 Digital disruptions and opportunities in the banking industry
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 Digital transformation (for banking, finance, or telecoms)
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 Dynamic equity option trading

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Financial Markets
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 Financial arithmetic
Financial negotiation skills
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
 FinTech
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Fixed income portfolio management

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
Futures, options, and structured products
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
 How the financial markets work
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 Interest rate derivatives and risk management

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 Interest rate, currency, and credit default swaps

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 International financial markets (bond, currency, rates, equities) update

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 Introduction to exotic options

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 Introduction to Financial Markets (money and capital markets)

 InsurTech
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 Issuing debt securities (bond origination)

 Money markets and foreign exchange
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 Pricing and valuing capital market instruments

 Pricing and valuing derivative instruments
 Private banking and wealth management
 Relationship management in private banking
 Structured products
 ESG and green bonds
 Term-structure of interest rates and yield curve construction
 The principals of trading and investing and the psychology of trading
 Trading and hedging with derivatives

14
Personal Development Training for Financial Services:
 Advanced negotiation skills
 Aiki-Com (Aikido with communication training)
 Agile leadership skills
 Anger management skills
 Client mapping
 Communication skills
 Conflict resolution
 Consultative selling skills
 Dynamic learning skills
 Executive leadership
 Fear management
 Goal setting
Gravitas building

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

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 Hypnosis and the language of influence
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 Improve performance with speed reading, memory training and Mind
Mapping™

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 Leadership training with Aikido
Listening skills
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 Memory training
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Mind Mapping™

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Modelling and installing excellent behaviour

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 Negotiation skills
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Neuro-linguistic Programming (NLP)

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
Pitching
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
Presentation skills training
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
Sales and presentation skills for the financial industry .
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 Sales techniques on the trading floor
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 Speed Reading
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 Team building with Aikido

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 Time Management
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 Timeline Therapy™
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Important Note:
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All courses both in Financial Training and Personal Development have already been
completed and excellent references are available.
Courses have been conducted in-house and/or as public seminars. We naturally tailor
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courses to meet specific in-house training needs as well as develop new courses on
demand. They have also been adapted for remote delivery.
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Additional services
• Commissioning of tailored training solutions
• Environmental, social and corporate governance programs
• Executive leadership coaching
• Mentoring services to individuals and teams
• Social corporate responsibility programs
• Special interventions (dyslexia, learning difficulties, mental rehabilitation)
• TimeLineTherapy™

Advisory services:
• Agile project management and scrum software

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• Business model innovation

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Business strategy
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•

• Coreless banking

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• Customer loyalty solutions
Data monetisation
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• Digitalisation strategy
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• Digital transformation
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Development of financial markets
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Development of trading ideas

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Economic policy development and economic restructuring
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• Edutec solutions
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Learning software distribution

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•

• NeuroHR competencies in financial services

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• Neuromarketing applied to banking

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• Open banking
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Payment solutions
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• Project development
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Staff engagement and retention

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Strategic re-orientation for banks

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•
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Technology solutions:
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• AI-driven assistance for banking

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• Customer and employee engagement solutions with gamification

• IS020022 payment transition implementation
• NeuroMarketing and NeuroHR
• Open banking solutions
• Payment solutions
• By Now Pay Later implementation

16
Client list
Aargauer Zeitung Arab Emirates Investment Bank
ABC Banking Corporation Arthur Andersen
Abegg Holding AseamBankers
Aberdeen Asset Management AsiaEquity Crest
Aberdeen Islamic Asset Management Asian Asset Management
ABN Amro Asian Development Bank
ABSA ATExelixi
Abu Dhabi Investment Corporation AZ Medien
Accenture Baiduri Bank
Affin Hwang Investment Bank Baillie Gifford & Co
Affin Investment Bank Bangko Sentral ng Pilipinas

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African Bank Bangkok Bank
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Agricultural Bank of Greece Bank al Etihad
AgroBank Bank Handlowy

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AK Jensen Group Bank Islam Malaysia
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Alaric Bank Kerjasama Rakyat

Al-Hokair family office
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Bank Nederlandse Gemeenten
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Al Khalij Commercial Bank Bank Muamalat Malaysia
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Alliance Bank Bank Negara Malaysia

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Alliance Law Firm Bank of America
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Alliance Merchant Bank Bank of America Merrill Lynch

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Allianz Insurance Bank of China

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Al Rajhi Bank Bank of England
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Al Rajhi Banking & Investment Corp Bank of Italy

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Alpha Credit Bank Bank of Ireland

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Amanah Raya Investment Bank of Mongolia

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Amanah Short Deposits Bank of Nova Scotia

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AmBank Bank Sentral Republik Indonesia

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AmiCorp Bank of Tokyo-Mitsubishi

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AmFunds Management Bank of Tokyo-Mitsubishi UFJ

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AmInvestment Bank Bank of Uganda

AmMerchant Bank Bank Pembangunan
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AMS American Management Bank Windhoek

Systems Banque Indosuez
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Amundi Banque Saudi Fransi

Anadeo Consulting GmbH Barclays Bank
Andersen Consulting Barclays Global Investor
Anglo American Basell
Anglo Romanian Bank Basler Zeitung
Apg All Pensions Group Baugenossenschaft Halde Zürich
Appenzeller Zeitung B-Flexion
Arab Banking Corporation BIMB Holdings

17
BKK Vor Ort DaimlerChrysler AG
Bloomberg Danajamin Nasional
BMW Danawa Resources
BNI Europa Debt Management Office UK
BNP Paribas Deloitte GmbH
Board of Investment Mauritius Dermaga Naluri
Boehringer Ingelheim Vetmedica Danske Bank
GmbH Department for International Trade
Botswana Telecommunications UK
Brigade Capital Management Depfa Bank
Broseta Abogados SLP Detica
Brunei Investment Agency Deutsche Bank
Brunei Ministry of Finance Deutsche Börse

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Buchs Medien Deutsche Bundesbank

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Bundesamt für die Anerkennung Deutsche Postbank AG
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ausländischer Flüchtlinge (BAFL) Development Bank of Southern

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Bundesamt für Flüchtlinge (BFF) Africa
Bundesamt für Umwelt (BAFU) Development Bank of St. Kitts &
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Cagamas Nevis
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Calyon DG Bank
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Capital Market Authority KSA Dogus Holding
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Capital Markets Authority Kenya Draeger & Hanse BKK

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Cazenove Draeger Werke
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Celgene Dresdner Kleinwort Wasserstein

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Central Bank of Nigeria Dubai Cares

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China Construction Bank Dubai Islamic Bank
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CIBC Wood Gundy Dutch Ministry of Finance

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Cim Group E.ON AG

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eBenchermarkers
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CIMB Investment Bank

Citadel London EMLV Ecole de Management
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Citibank Leonard di Vincci

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Citigroup Global Markets Employees Provident Fund (EPF)

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City of Johannesburg EON Bank

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Coca-Cola Eradicure-Alliance
Commercial Bank of Greece Eskom
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Commerzbank Etiqa Insurance & Takaful

Continental Teves AG Eurex
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Corporateview European Bank for Reconstruction

and Development
Credit Agricole
European Central Bank
Credit Agricole – CIB
European Financial Services Round
Credit Guarantee Corporation
Table
Credit Lyonnais
European Investment Bank
Credit Suisse
European Stability Mechanism ESM
CRIF
Export-Import Bank of Malaysia
CSFB Credit Suisse First Boston
6

18
Exxonmobil Exploration and International Committee of the Red
Production Cross
Fame International College International Faculty of Finance
FELDA International Finance Revue
Fidelity Investments International Shari’ah Research
Financial Conduct Authority Academy for Islamic Finance (ISRA)
FinXP Intertrust SA
First Bank of Nigeria Investec
First Pension Custodian Nigeria Investor AB
Fiscalab Capital Markets IRIS Corporation
Fiserv Inc IS Bank
Fulcrum Asset Management Jambatan Kedua
Futuregrowth Asset Management Jimah O&M

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GarantiBank Johannesburg Stock Exchange (JSE)

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GASAG Berliner Gaswerke AG Johor Corporation
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Genting Jones Family Office

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GFT Technologies AG JP Morgan Chase Bank
Gold Fields Kaeser Kompressoren
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Goldman Sachs KAF Investment Bank

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Greenwich Natwest KAF-Seagroatt & Campbell Securities
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Gulf Investment Bank KANEE Kuwait
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Halifax Bank of Scotland Kumpulan Wang Persaraan (KWAP)

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Harina Consultancy Services Kedge Capital Private Equity
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Hermes Investment Management Khazanah Nasional

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Hessische Landesbank HELABA Köfrezbank .

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HLG Asset Management Komercni Banka
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Hong Leong Asset Management Kocbank

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Hong Leong Bank Kumpulan Wang Persaraan

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HR Factory Kurnia Technology Resources

HSBC Kuwait Finance House
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HSBC James Capel Labuan Reinsurance

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Land Bank
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Hüttenwerke Krupp Mannsmann

GmbH Landesbank Baden-Würtemberg
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Hypo-Bank LGT Bank in Liechtenstein

HypoVereins-Bank Lloyds of London
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Independent Data Services Loyalis

India International Bank Luzerner Kantonalbank
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Indonesia Financial Services Macquarie Capital Securities

Authority Malayan Banking (Maybank)
Industrial Development Corporation Malaysia Building Society
ING (Malaysia) Malaysia Debt Ventures
ING-DiBa AG Malaysian Industrial Development
Institut Kefahaman Islam Malaysia Finance (MIDF)
Integrata AG Manulife Asset Management
Intercapital Brokers Mamee Double Decker

19
Mauritius Bank Oman Investment Fund
Mauritius Commercial Bank Openlot
Mauritius Telecom Opus Asset Management
Maybank Asset Management OSK Investment Bank
mBank OTE Academy
MEAG Munich ERGO Ottoman Bank
AssetManagement GmbH Painewebber International
MedienAusbildungsZentrum Pasha Bank OJSC
Mediocredito Centrale Payment Components
Merrill Lynch Pejabat Setiausaha Kewangan
Midland Bank Negeri
Millennium Bank Pengurusan Aset Air
MNRB Holdings Pemodalan Assar

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Morley Fund Management Perbadanan Insurans Deposit

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Moscow Narodny Bank Malaysia
LT
MUFG Bank Permodalan Nasional

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Namibia Equity Brokers Pertubuhan Keselamatan Sosial
Namibia Post (PERKESO)
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National Bank of Abu Dhabi Petroliam Nasional (Petronas)

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National Bank of Greece Philip Morris International
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National Credit Bank Porsche
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National Institute of Bank Presser & Co

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Management (India) PriceWaterhouseCoopers
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NatWest Markets Profile Software

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NedBank (South Africa, Namibia) Prokhas

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Nestle PTPTN
&

Neue Zürcher Zeitung Public Bank

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New York Institute of Finance Public Investment Bank

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Public Investment Corporation

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NIB Capital
NIBC Bank Q7 Consulting
ni

NM Rothschild & Son Qualco AE

@

Nomura Bank Rabobank

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Nomura International Radio Basel

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Nomura Securities Radio e Televisiun Rumantscha RTR

Norddeutsche Landesbank Radio Ostschweiz
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Nordea Bank Raiffeisenbank

Northeast Securities RAM Rating Agency of Malaysia
ep

NovaBank RBS Royal Bank of Scotland

NWB Nederlandse Waterschapsbank Refinitiv
OCBC Bank Regiments Capital
Oest. Bundesfinanzierungsanstalt Reliance Asset Management
Oesterreichische Kontrollbank Reuters
Oesterreichische Nationalbank RHB Banking Group
Old Mutual Richmond International
Oliver, Wyman and Co RMB Morgan Stanley

20
RMB Rand Merchant Bank Sumitomo Mitsui Banking Corp
RWE Westfalen-Weser-EMS AG Sunway REIT Management
Sabah Credit Corporation Suruhanjaya Tenaga
SAINS Swan Insurance
Sal. Oppenheim Jr & Cie Symmetry Multi-Managers
SAMBA Financial Group Tages Anzeiger
San Paolo di Torino Tamedia
Sanwa International TD Securities
SapuraAcergy Technische Werke Friedrichshafen
Sarawak Energy GmbH
Saudi British Bank (SABB) Telekom Malaysia
Saudi Stock Exchange Telenor
SBC Warburg Dillon Read Terengganu Incorporated

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Schaffhauser AZ The Central Bank of Lesotho

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Schaffhauser Nachrichten The Financial Services Authority
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Schweizerische Bundesbahnen (FSA) UK

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Schweizerische Nationalbank Theiler Druck
Thenamaris
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SCOPE Sarawak Centre of

Performance Excellence Thomson Reuters
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Scottish Equitable (Aegon) Tiger Management Services
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SDB Asset Management TMBAM Thai Military Bank Asset
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SE Banken Management
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Sectoral Asset Management tpc tv productioncenter zurich
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Securities Commission Malaysia Transcafe

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Self Storage Space UK Transnet

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SF Schweizer Fernsehen Treasury One
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Siemens Trust for Urban Housing Finance

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Sime Darby Turkcell

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UBS
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SKEMA Business School

SME Bank UTSB Management
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Societe Generale UK Listing Authority

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United Bank of Kuwait

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SOFAZ State Oil Fund of Azerbaijan

South African Post Office United Overseas Bank (UOB)
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South African Reserve Bank University of Manchester

Southern Bank Upc Switzerland
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Sparda-Bank UOB-OSK Asset Management

Valuecap
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SRG
Standard & Poor’s MMS Vattenfall
Standard Bank Vattenfall Energy Trading
Standard Chartered Bank WAD Westsaechsische
Abwasserversorgungs- und
Stanlib Asset Management
Dienstleistungsgesellschaft
State Bank of Mauritius
Waterfront Hotel
Stock Exchange of Mauritius
Wasco Management Services
Strategic Executive Programmes
Waypoint Capital
Südwest LB
9

21
West Merchant Bank Wintershall Holding AG
Westdeutsche Landesbank Zimasco
WestLB AG Zetranext
Westpac ZJ Advisory
WGZ Bank Zurich Insurance
WINGAS GmbH & Co KG

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Countries where training has been conducted
Austria
Azerbaijan
Brunei
Canada
China
Czech Republic
Denmark
France
Germany
Greece
Hong Kong

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en
India
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Ireland
Italy

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Lithuania
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Luxemburg
Malaysia
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Mauritius
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Mongolia
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Netherlands
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Poland
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Portugal
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Russia
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Saudi Arabia
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Singapore
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South Africa
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Sweden
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Switzerland
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Thailand
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Turkey
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United Arab Emirates

United Kingdom
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United States of America

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Origin of participants

Albania Ghana Namibia

Algeria Greece Netherlands
Afghanistan Guernsey New Zealand
Andorra Honduras Nigeria
Angola Hong Kong North Macedonia
Argentina Hungary Norway
Armenia Iceland Oman
Australia India Pakistan
Austria Indonesia Palestine
Azerbaijan Iran Peru

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Bangladesh Ireland Philippines
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Bahamas Isle of Man Poland

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Bahrain Israel Portugal
Belarus Italy Qatar
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Belgium Ivory Coast Romania

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Bolivia Jamaica Russia

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Bosnia and Japan Saudi Arabia

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Herzegovina Jersey Senegal

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Botswana Jordan Serbia
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Brazil Kenya Singapore

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Brunei Kuwait
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Slovenia
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Bulgaria Kyrgyzstan Slovakia
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Burundi Labuan South Africa

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Cambodia Latvia South Korea

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Cameroon Lebanon Spain

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Canada Lesotho Sri Lanka

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China Libya St. Kitts & Nevis

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Colombia Lichtenstein Syria

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Croatia Lithuania Swaziland

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Cyprus Luxembourg Sweden

Czech Republic Macau Switzerland
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Denmark Madagascar Taiwan

Djibouti Malaysia Tanzania
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Egypt Malta Thailand

Estonia Mauritius Tunisia
Finland Morocco Turkey
France Mexico Turkmenistan
Gambia Moldavia Ukraine
Georgia Mongolia United Arab Emirates
Germany Montenegro United Kingdom
Gibraltar Mozambique

12

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United States of
America
Uruguay
Vietnam
Zambia
Zimbabwe

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pm
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 D

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Petros Geroulanos

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INSPIRING LEADERS TO STRENGTHEN THEIR INFLUENCE

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Petros Geroulanos
EPIGON LTD | LONDON SW10 9JZ, UNITED KINGDOM

26
Dear Reader

RE: Your confidential sounding board

Thank you for taking a moment to view this document.

You know that ordinary things consistently done, produce extraordinary results. Yet often, we
stray away from the path we want to take. Sometimes, we need an independent third party
perspective. At other times, we want to talk with somebody who quickly comprehends the
multiple dimensions of an issue so that we can gain clarity of thought. Mostly, we need
somebody who from experience may offer a wider perspective, specific strategies and practical
skills to address specific subjects.

t
I am Petros Geroulanos, and I have a question for you.

en
LT
Imagine how you will feel when you see improvements because of us working together:

pm
 You see your business do better.
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 You successfully manage your board and make congruent decisions.

You strategically think of your next steps.

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 You look at the remarkable results you achieved.
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 You sound out your ideas in confidence.

 You articulate your contentious argument constructively.
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 You address conflicts with emotional intelligence.
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 You gain clarity on your next moves.

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 You constructively resolve the issues you are facing.

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 You reach specific and measurable results.
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 You get your work done faster and easier.

 You constructively spend your time.
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 You align your executives with your aims.

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You succeed in having your teams function and perform better.

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
 You create a thriving ecosystem based on your key values.
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 You save time managing information.

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 You have a person of confidence by your side.

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Would that inspire you?

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Would you like to consistently do ordinary things to produce extraordinary results?

ig

There is no better time than now to make it happen.

To find out how I can be a catalyst for transformation and how this can work for you, please read
ep

on and book a complimentary call using the link below.

https://tidycal.com/epigon/30-minute-meeting-with-petros-geroulanos.

Best regards,

Petros Geroulanos
Director
EPIGON LTD

Private and confidential

1

27
DESCRIPTION
In today’s world of technological advancements and shorter human interactions the
importance of executive influence matters more and more. This is addressed by a blend of
training, coaching and mentoring. The main question is, do you have the right catalyst in place
to support you in your leadership role and the people working with you?

Training
Training is about transferring knowledge from the subject matter expert to expand the skills of
the executive. This usually involves teaching a group of people. It is an excellent way of
ensuring that all participants receive the same information. Current online training has the
benefit of passing on the same information asynchronously to a scalable audience. This often
falls short of consistently applying the learnings in practice before such input naturally weans
off with time.

t
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Executive Coaching
LT
Elite athletes use a coach to reach their full potential, so do executives. They require

pm
specialised input to consistently sharpen their skills, improve the overall performance and
reach excellence faster. A coach provides guidance to an executive on formulating specific and
N

measurable goals. Then clear actionable milestones are agreed and monitored until the desired
outcomes are reached. The coach holds the executive accountable.
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In a strict executive coaching set-up, the coach does not provide content, guidance, ideas nor
IG

solutions. This takes us to mentoring.

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Mentoring
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.
In contrast, a mentor draws on expertise, maturity, and experience to share knowledge, know-
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how, skills and tested solutions for the executive to develop and grow. This includes training,
&

coaching, and provides positive and negative feedback. The mentor also acts as a sounding
board to try out different approaches and to fine-tune them.
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In-Residence Mentoring and Coaching

Here the mentor is available to you and your team. The mentor ensures the entire team is
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aligned with your goals and the goals of the organisation. Team members receive the coaching
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to perform at their best possible level. Each member benefits from the combined input so that
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the team produces coherent results.

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In summary, mentoring combines the teaching provided through training with the goal setting,
implementation and accountability provided through coaching. The mentor also brings
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expertise and personal experience to resolve the issues that occur during the implementation.
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A mentor in residence provides continuous and independent support without the

inconvenience associated with assessment, employment, remuneration or promotion. This
remains under control of management and human resources.

Private and confidential

2

28
MEET YOUR MENTOR

With 35 years of professional experience in

financial markets, trading, sales and product
development, I am a seasoned mentor to
owners, presidents, board of directors, Senior
Leadership Teams, CEOs and other members of
the C-suite. I have worked with executives from
over 400 institutions in 100 countries across
Europe, North America, Asia, the Middle East and
Africa.
Petros Geroulanos

t
My contribution is rooted in my extensive multi-cultural and international experience in diverse

en
LT
industries which include financial markets and investing, private equity, manufacturing,
tobacco, oil and gas, renewable energy, hospitality, pharma, fashion and FinTech. I have been

pm
engaged with large corporations, SME’s, family business and start-ups.
N

In addition to my technical skills, I bring a large toolbox to increase your effectiveness.

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Reach out and arrange a quick call now.

.u
IG

https://tidycal.com/epigon/30-minute-meeting-with-petros-geroulanos.
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co
EP

WHAT YOU WILL GAIN

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With the right mentor, you can expect the following benefits
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 Clarity in complex situations.

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 An unbiased, confidential, third-party view from a good listener.

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 A systematic approach for you to resolve the issues at hand.

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 A practical understanding on the psychological motives of others and how to address them.
 A versatile sounding board to float ideas.
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 Skills and confidence to address delicate or sensitive situations.

@

 Tools to communicate persuasively with greater impact adapted to the individual setting.
ai

 Purposeful presentations adjusted to the size and background of the audience.

on

 Ways to free up time by doing things effectively and efficiently.

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 Freedom to focus on activities of greatest impact.

You benefit from a catalyst that leads to significant improvements in your leadership resulting
ig

in your personal and business success.

ep

Private and confidential

3

29
MY APPROACH
As a mentor, I initially engage in a fact-finding process to identify the needs and wants using a
SPIN process. These are then translated into SMART goals. Once agreed, we work together to
define the roadmap to reach the goals. From session to session, we agree on specific tasks to
be completed. We regularly check to ensure that we are aligned with our goals and adjust when
necessary. We review the overall goals and deliverables every quarter or more frequently if
desired. This makes the approach very flexible. It adapts to your requirements without loosing
sight of the overall target. It is not ‘one-size fits all’ approach, but a perfectly fitting glove.

We blend ingenuity, independence and integrity to drive the commercial success of our clients.
We bring clarity and ignite the energy with innovative tools, actionable strategies, and inspiring
insights. As a result, our clients are empowered to reach their aspirations.

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WHAT MY CLIENTS SAY
LT
“Petros aligned my analyst team to perform again and smoothly integrated a new team leader.

pm
Moreover, he was a great sounding board to me. His input permitted me to navigate around the
investment challenges so that I can focus on raising fresh capital.”
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Alex P. CEO Kedge Capital Private Equity Ltd

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“I use Petros regularly to vent the issues I face in tough market conditions. Talking to him
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allows me to regain clarity.

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When my staff does not perform according to my expectations, Petros provides valuable input
EP

and formulates diverse ways on how to discuss it. As result I address them in a more
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diplomatic manner than my spontaneous way.”

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Alexander C. President & CEO Notz Metall AG
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“Petros introduced me to mind mapping for business. I can now prepare very significant
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speeches in twenty minutes. In the past, that would have kept me up all night. This removes the
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stress and gives me more time with my family.”

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Thomas K. Managing Partner, Kaeser Kompressoren GmbH

@
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“Petros is a great listener and helped me gain clarity already during the first session. It also
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resulted in selling my assets faster and at a significantly higher price than expected”
Kevin B. Owner and President of the Board, Coyuchi Inc
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“It is not about what it costs, but the results I was able to produce thanks to working with
Petros.”
Carol R. Senior VP Adam Street Partners

“With Petros I polished my executive presence so that I got promoted to head of cash
management within months instead of years.”
Miguel M. Head of Cash Management, Waypoint Treasury Ltd

Private and confidential

4

30
“Petros guided me to grow into the new role as Chief Compliance Officer. He sharpened my
messaging and brought out my executive presence. This resulted in gaining the trust of the
board and to become the person of confidence to the chairman.”
Andrew C. Head of Compliance, B-Flexion Ltd

“I was quite reluctant to engage with a mentor and took the chance. The goal setting was very
clarifying, and we identified my exact expectations for an exceptional pay-rise. With Petros, we
formulated my goals accurately. My chairman offered me exactly that rise on his own account.
Furthermore, with Petros we polished my presentations to be able to impress two audiences
with over 1000 participants.”
George L. MD of airline

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“Using the pitching technique that I learned from Petros I consistently convert resistant
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investors.”
Andreas V. CFO, Zobel Values AG

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“Petros’ insights into psychology and risk management allowed me to avert great losses. Now,
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I regularly contribute seven digits to the bottom line.”
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Laurent T. Head of Middle Office, Société Générale
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“Working with Petros as my mentor, coach and supporter has been nothing short of
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transformative. Through the journey, I have built my confidence in communication, emotional

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resilience, management of difficult situations, and self-worth.
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From the very first session, Petros’ open nature and honest approach coupled with his deep
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understanding of the industry and people helped me build trust quickly. He understood my
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goals, challenges and aspirations. Each session was tailored to tackling the obstacle and his
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insightful guidance and pragmatic approach helped me overcome difficulties such as working
with challenging stakeholders or how best to tell the story. Following each session, I always felt
ni

positive and braver facing the challenges ahead and this is testament to Petros’ positive nature
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and coaching style. You could always tell that Petros thought about the sessions afterwards.
He brings to the next sessions new techniques or approaches to tackle the obstacle at hand. I
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feel empowered now with new skills and tools which I'll use in the future too.
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Petros’ highly observant nature and inquisitive mind allows him to be adaptive in his
techniques, tailoring to individuals needs and personal styles. His ability to listen intently and
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ask thought provoking questions and provide personal guidance is instrumental to his coaching
and mentoring. I can truly say, his guidance will stay with me for life.”
Yan-Yan Y. Head of Transformation, Waypoint Capital Ltd

“Petros interventions helped me remove negative emotions that were burying my judgement
and stopping me from taking the required actions.”
Malena Y. Real estate manager

Private and confidential

5

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THE CLIENT LIST
With 35 years of professional experience in trading, sales and product development, I have been
training, coaching and mentoring executives from over 400 institutions, mainly in the finance
industry.

My work has been mostly with corporations, SME’s, international banks, medium sized
investment houses, private equity and hedge funds, rating agencies, multi-lateral development
banks, regulators and government agencies as well as FinTechs and family offices.

Where some of my clients work or worked:

Abegg Holding Enny Monaco
Aberdeen Asset Management European Central Bank
Abu Dhabi Investment Corporation European Stability Mechanism ESM

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Accenture ExxonMobil Exploration and Production

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Al Rajhi Banking & Investment Corp Fidelity Investments
B-Flexion HSBC

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Bank of America Merrill Lynch Kedge Capital Private Equity
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Bank of England NatWest Markets

Bank of Tokyo-Mitsubishi UFJ Nestle
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Barclays Bank Nomura International
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Brigade Capital Management Notz Metall

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Brunei Ministry of Finance Petronas

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Calyon Philip Morris International

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Citadel London Porsche

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Citigroup Global Markets Profile SW
Coca-Cola Standard Chartered Bank
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DaimlerChrysler AG Stemcor
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Danske Bank Sumitomo Mitsui Banking Corp

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Deutsche Bank Telenor

Deutsche Börse Turkcell
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Deutsche Bundesbank UBS

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Draeger Werke Zurich Insurance

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This is a representation. The complete client list is available upon request.

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Private and confidential

6

32
The 6 Fundamental Steps to Your Success
1. Set-up session
The stakeholders agree with the mentor on the goals and measurable outcomes to be
achieved. The mentor collects the information and proposes an action plan that
reflects the agreed goals and time frame. The proposal plan is a short summary
reflecting the discussions and decisions made.

The objectives must be formulated in writing and describe specific and measurable
results that the executive must reach within a predetermined timeframe.

2. Chemistry meeting
This complimentary first meeting serves to assess the personal synergy between the

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executive and the mentor and build the chemistry needed for building a valuable
LT
relationship. Upon completion of this free session and agreement to proceed, the
appropriate charge is due.

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3. Setting-up the process
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The mentor and the executive go through the SPIN process to identify the needs and
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wants of the executive. This is followed by a SMART goal setting. From this point, action

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steps are identified.
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4. Actual sessions

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We arrange for regular sessions from one session to the next. These are usually weekly.
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The mentor sets specific and measurable tasks for the executive to complete between
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sessions. The executive completes the tasks and reports the findings back to the
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mentor. The mentor provides suggestions, practical approaches, feedback and
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recommendations.
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5. Debrief with the executive

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The mentor conducts a debrief session with the executive in preparation for the review.
The executive provides a recorded testimonial (text or video).
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6. Review
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In conducting an all-encompassing debrief session, the mentor reviews the process and
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results achieved with the executive, as well as with key players withing the organisation
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as required. Next steps are agreed.

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Private and confidential

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Availability for Additional Sessions
The mentor is available ‘on call’ to address urgent management, leadership, communication,
presentation and negotiation issues that occur during the day-to-day operation of the business.

Additional Services
Additional services may be agreed. They could include pitching, presentation skills, sales,
fundraising, succession planning, staffing, and interviewing to ensure new members carry the
right psychological profile and skill set.

Duration of Each Session

Each session typically runs for about 60 minutes. We adjust this subject to the immediate
requirements.

Access to the Service

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Subject to the program selected, we will agree on the participating members.
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Private and confidential

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SELECT FROM OUR FOUR PROGRAMS

1. CEO Mentoring
This is an annual mentoring program aimed at the highest level. It consists of up to 50 live
online and four face-to-face sessions. These can be a blend of regular calls and ad-hoc calls to
address urgent situations. This program is only available to a maximum of six clients per year.
It is the most flexible of all the programs on offer and may require the mentor to travel onsite.

2. Executive Leadership Coaching

This is a three-month program, consisting of 10 coaching sessions with an additional SPIN and
goal-setting session at the start, and a review and testimonial session at the end. The coach
provides tasks from session to session that are in line with normal workflow. These are
reviewed, the results improved during the call and new tasks are set for the following session.

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When required, general feedback, as well as specific skills and techniques are shared during
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the session.

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3. In-Residence Mentoring and Coaching for Teams
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This program blends the CEO Mentor program with the Executive Leadership Coaching
program. Here, the coaching and mentoring covers a full year of regular weekly calls with up to
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7 members. Participants benefit from a unified approach that is aligned with mandates from
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the top leadership. The availability of urgent calls is also part of this program.
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Adjustment to the in-residence mentoring program
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Up to ten (10) hours a week are deemed appropriate. This may be surpassed from time to time.
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Every quarter, the mentor presents a short analysis to ensure that the team receives the
.
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intended benefits, and the time of the mentor is not consistently above the threshold. If the
time of the mentor is consistently above the threshold, the mentor will inform the client and
&

discuss the appropriate adjustment of the pricing in line with the offer above.
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4. Specific TimeLine Therapy® Intervention

This is a specific 5-step intervention that typically lasts 10 hours split over 6 sessions. The
ni

purpose is to overcome specific negative emotions or limiting beliefs that impact performance,
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such as stage freight, travel-related anxiety or low self-esteem.

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5. Additional Services
We also offer additional services listed below and can develop or source other related services.
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 Staff Compatibility and Assessment

 Motivational Maps
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 Skills Training
 Financial Markets Training
 Break-through Sessions
 NeuroHR Competencies
 Staff Engagement and Retention Program Development (App-based)

Private and confidential

9

35
 Financial Markets
Overview

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Petros Geroulanos

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Lic.oec.HSG; MNLP
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FINANCE is about 1 thing only

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CASH
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the right AMOUNT

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at the right PLACE

at the right TIME
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 arranged in a specific contractual form

This is called a product or instrument
2

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 Banking
 Is about
lending and
Borrowing
 Also cash flows!

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Players
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 Investors, lenders or buyers

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 Wholesale (other banks)

 Institutional
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 Retail
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 Trading
 Banks
Issuers, borrowers or sellers
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 Supranationals
 Governments
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 Municipalities
 Corporates
 Special purpose vehicle
 Intermediaries, centralised counterparties (CCP), exchanges
 Regulators
 Others
4

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 Time horizon
 Determines the product category or banking
department

Short term: FX and Money Markets

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Long term: Capital Markets

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Institutional investors
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Who has cash?

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 Pension funds
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 Insurance companies
Asset management companies and funds
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 Exchange-traded funds (ETF)

 Hedge funds
 High net worth individuals (HNWI)
6

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 Retail investors
 Banks
 Savings and loans
 Small institutions
 Aunt Agatha & Mrs Watanabe (Japanese
housewives

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 Joe Public
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 other

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Borrowers / issuers
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Who needs cash?

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 Governments
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 Government Agencies
Supranational Organisations
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 Banks
 Corporates
 other
8

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 Motivation of an issuer
 Finance need (Cash)
Current
In the future
Interest rates likely to go up in the future?
 Maturity

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Currency

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
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 Current credit perception

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 Pricing (demand)
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 Swap Pricing (demand for swaps) 9

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Intermediaries
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 Securities houses
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Investment banks
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 Wholesale banks
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 Brokers
Stock exchange
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 Centralised counterparties (CPP)

 other

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 Regulators
 Government agency
 Central bank
 Self-regulatory bodies
 none

t
en
LT

pm
N

11

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Other players
in
in

 Information providers
a

Trading platform providers

on


Tr

 International Swap Dealer Association (ISDA)

ig

 Clearing and settlement office

Eurostream (formerly CEDEL)
ep

Euroclear
 Training companies
 Publishers
 other 12

41
 Uses of any financial instrument
 Take risks (invest)
 Hedge risks (protect)
 Market making
 Risk management
 Arbitrage
Synthesis

t


en
 Cash flow management
LT

pm
N

13

lo
O

uk
e
IG

o.
ev
EP

c
D

on.
&

ig
g

ep
in

Financing methods
in

 Lending (Banking)
a

Issuing (Intermediations)
on


Tr

Auctions
Tenders
ig

Placements (private)
ep

Offers for Sale

Underwriting
Taps
Tranches
14

42
 The financing process
 The issuer talks to the bank
INVESTMENT BANK

I
S
S
NEW
U

D
ISSUES

t
DEPT.

en
E
TRADERS
LT
R

pm
N

15

lo
O

uk
e
IG

o.
ev
EP

c
D

n.
o
&

ig
g

ep

The financing process (II)

in
in

 Bank’s new issues department talks to the sales force

a

on

INVESTMENT BANK
Tr

I
S BOND
ig

SALESFORCE
S
NEW
ep

U ISSUES
DEPT.
E
TRADERS
R

16

43
The financing process (III)
 Sales force talks to the investors
INVESTMENT BANK

I I
S BOND N
SALESFORCE V
S E
NEW
U ISSUES S

D
DEPT.

t
E T

en
O
R
LT
R
S

pm
N

17

lo
O

uk
e
IG

o.
ev
EP

c
D

on.
&

The financing process (IV)

ig
g

ep
in

 Issue is then traded with investors (primary)

in

@
a

on

INVESTMENT BANK
Tr

I I
S BOND N
ig

SALESFORCE V
S E
NEW
ep

U ISSUES S
DEPT.
E BOND T
TRADERS O
R
R
S

18

44
The financing process (V)
 Trading between investors continues possibly to maturity
(secondary)

INVESTMENT BANK

I
BOND N
SALESFORCE V
E
S

t
T

en
BOND
TRADERS O
LT
R
S

pm
N

19

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Underwriting
in
in

Lead managing bank and others underwrite

a


on

(guarantee)
Tr

 to the borrower
 the issue amount
ig

 at a given price
ep

 Underwriter must buy all securities

 Underwriter looks for protection: Syndication

20

45
 Syndication

LEAD-MANAGER

SENIOR MANAGER SENIOR-MANAGER

D
MANAGER CO-MANAGER CO-MANAGER CO-MANAGER CO-MANAGER

t
en
LT

pm
N

21

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig

Issuer
g

ep
in

USD1 billion issue

Co-lead manager Co-lead manager

in

USD450 million USD450 million

a

Senior co-manager Senior co-manager Senior co-manager

on
Tr

USD10 million USD10 million USD10 million

Senior co-manager Senior co-manager

USD10 million USD10 million
ig

Junior-manager Junior-manager Junior-manager Junior-manager Junior-manager

ep

USD5 million USD5 million USD5 million USD5 million USD5 million

Junior-manager Junior-manager Junior-manager Junior-manager Junior-manager

USD5 million USD5 million USD5 million USD5 million USD5 million

Selling fees and underwriting fees apportioned as per share of total

Depend on rating and maturity, eg 20 bp for AAA 5 year
22

46
 Book building
 Book building refers to the process of generating,
capturing, and recording investor demand for shares
during their issuance process.
 The “book” is the off-market collation of investor
demand by the book runner

t
It is confidential to the book runner, issuer, and

en


underwriter.
LT
The underwriter bears the risk of non-payment by an

pm


acquirer or non-delivery by the seller.

N

23

lo
O

uk
e
IG

o.
ev
EP

c
D

n.
o
&

ig
g

Rating agencies
ep
in
in

Description S&P Moody’s

a

on

Investment grade AAA to BBB- Aaa to Baa3

Tr

Low Credit BB+ to B- Ba1 to B3

ig

Speculative CCC+ to D Caa to C

ep

24

47
 Investment grade ratings
Description S&P Moody’s
Prime AAA Aaa
AA+ Aa1
High quality AA Aa2
AA- Aa3
A+ A1

t
Upper medium A A2

en
A- A3
LT
BBB+ Baa1

pm
Lower medium BBB Baa2
N

BBB- Baa3 25

lo
O

uk
e
IG

o.
ev
EP

c
D

n.
o
&

ig
g

Speculative grades
ep
in
in

Description S&P Moody’s

a

on

BB+ Ba1
Tr

Low grade BB Ba2

ig

BB- Ba3
ep

B+ B1
Highly speculative B B2

B- B3
26

48
 Why do banks need capital?
 Source of funds
 Buffer against future, unidentified losses
 Cushion that protects depositors and creditors
 Provides a level of confidence
Protects against systemic risk

D


t
en
LT
 BASEL I, II and III, now called Basel Framework

pm
N

27

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

Simplified balance sheet of a bank

ep
in
in

@
a

on
Tr

ig
ep

28

49
 Basel I
The 1988 Capital Accord
 Uniform definition of capital (Tier 1 and Tier 2)

 Risk-weights applied to categories of assets based on

perceived risk (0, 20, 50 and 100%)

 Off-balance sheet exposures ”converted” to an on-

balance sheet amount with appropriate risk weight

applied

t
 Minimum of 8 per cent capital set for internationally

en
LT
active banks in the G-10 countries
 (Capital/RWA ≥8%)

pm
N

29

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

Weaknesses of the 1988 Accord

ep
in
in

 Does not assess capital adequacy in relation to a bank’s

a

true risk profile

on
Tr

Limited differentiation of credit risk

No explicit recognition of operational and other risks
ig

 Sovereign risk not appropriately addressed

Does not provide proper incentives for credit risk mitigation
ep

techniques (hedging, etc)

 Enables regulatory arbitrage through securitisation, etc.

30

50
 Objectives of the Basel framework

 Promote safety and soundness of the banking system

 Better align regulatory capital to underlying risk
 Encourage banks to improve further their internal risk
management systems
 Focus on internationally active banks but should be suitable for
banks of varying levels of complexity and sophistication

t
en
LT

pm
N

31

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

Leads to ‘optimisation of capital’

ep
in
in

 Off-balance sheet instruments such as

a

Forward Rate Agreements

on
Tr

Futures
Interest Rate Swaps
ig
ep

32

51
 Why is Basel II so complex?
 More risk sensitivity means more detail
 It is applicable to all banks, so in many cases
there are more options
Banks in different jurisdictions
Banks of all sizes and levels of sophistication

t
It is much more comprehensive: two new pillars

en
LT
plus operational risk

pm
N

33

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

The organisation of Basel II

ep
in
in

@
a

on
Tr

ig
ep

34

52
 The three pillars in detail

t
en
LT

pm
N

35

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

Risk weighted assets (RWA)

ep
in
in

@
a

on
Tr

ig
ep

36

53
 Credit Risk

t
en
LT

pm
N

37

lo
O

uk
e
IG

o.
ev
EP

c
D

n.o
&

ig
g

Leads to more ‘optimisation of

ep
in

capital’
in

 Credit-default Swaps
a

Asset-backed Securities
on


Tr

ig
ep

38

54
 Basel III requirements
 More quality capital
to cover for risks not yet accounted
Better quality capital: common equity
No tricks
No dilutions

t
New liquidity standard

en

LT
 Leverage ratio

pm
 Better information (ICAAP) on board level
N

39

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

Basel Framework capital requirement

ep
in
in

Tier 1 Tier 2 Total CAR

a

Common Other Total T1 Total T2 Total CAR

equity
on
Tr

Basel II 2.00 2.00 4.00 4.00 8.00

Basel III by 1.1.2015 4.50 1.50 6.00 2.00 8.00
ig

Capital conservation buffer (CCB) +2.50

Total Capital incl. CCB 7.00 1.50 8.50 2.00 10.50
ep

Countercyclical buffer (CB) +2.50

Total Capital incl. CCB and CB 9.50 1.50 11.00 2.00 13.00
Systemically important banks more more

40

55
 Leads to more ‘new’ form capital
 Contingent Convertibles (CoCo’s)
 Credit Value Adjustment (CVA)

t
en
LT

pm
N

41

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

The global liquidity standard

ep
in
in

Banks to have enough high quality liquid assets to

@

cover for a run-off of deposits during a 30-day distress

a

on

period:
Tr

Liquidity coverage ratio (LCR)

ig

 Banks to fund long-term assets with long-term

liabilities:
ep

Net stable funding ratio (NSFR)

 Other monitoring rules

LCR to be implemented from 1st of January 2015.

42
NSFR on monitoring status until 1st of January 2018.

56
 Expecting liquidity instruments
 Pricing of liquidity
 xVA
 More cash collateral

t
en
LT

pm
N

43

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

Non-risk based leverage ratio

ep
in
in

 5% of T1
a

Permits netting of hedges (asset-liabilities)

on


Tr

Like US-GAAP
ig

 Puts a cap on debt

EU banks to be exempt
ep

44

57
 Tr EP
a in IG
in O
ep g N
ig &

58
LT
on D D

Euro-Market
@ ev
Global Markets

ep e lo
ig pm
o n. en

46
45

co. t
uk
Money market instruments
 LOANS AND DEPOSITS
 CERTIFICATES OF DEPOSIT (“CD”s)
 TREASURY BILLS (“T-BILLS”)
 FORWARDS and FUTURES

t
FORWARD RATE AGREEMENT (“FRA”)

en

LT
 REPURCHASE AGREEMENT (REPO’s)

pm
 OVERNIGHT-INDEXED SWAPS (OIS)
N

47
 OTHER
lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Money market instruments

in
in

@
a

on

Tradable Non-tradable
Tr

May be sold prior to Have to be held to

ig

 

its final maturity maturity

ep

48

59
 Libor
London interbank offered rate
Rate at which banks offer cash

t
en
LT

pm
N

49

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Foreign Exchange (FX)

in
in

@
a

on
Tr

ig

€
ep

£
50

60
 Foreign exchange instruments
 Spot Foreign Exchange
 FX Forwards (Outright)
 FX Swaps
 Time options
 Options

t
Exotic options

en

LT

pm
N

51

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Capital markets
in
in

 Long-term money
a

Equity (Securities)
on
Tr

Loans (Agreement)
Bonds (Securities)
ig
ep

52

61
 Capital markets

Loans Equity

t
en
Bonds
LT

pm
N

53

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

Development in capital markets

ep
in
in

@
a

Loans Equity
on
Tr

ig

S
ep

Bonds

S=Securitisation
54

62
 Arbitrage
FX Options Equity Options
Currency Futures Equity Futures
FX Swap Spot FX Equity
Forward FX
Swaps
Forwards Deposits Repos Bonds
D

t
FRN’s

en
CP T-Bills
LT
Interest Rate Futures Bond Futures

pm
IR Options Bond Options
N

55

lo
O

uk
e
IG

o.
ev
EP

c
D

on.
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

63
 Macroeconomic Forecast
Direction/Momentum
Liquidity
Credit beta
Reversion Now
The yield curve
Seasonality Future

Credit Spread Duration time horizon of forecast

Individual forecast
Macro economic (fundamental analysis) Forecasting maturity of the instrument
Expectations
Sector assessment Consensus forecast

Single name/company assessment Priced in through trading and positioning

Sentiment & liquidity Comparison with actual data

Valuation and reversion

TED spread Demographics
Slope of the curve
Key rate duration (KRD) Purchasing Power Parity (PPP)

Momentum Investment decision Real interest rate differentials

Reversion RPI

Cyclical outperformance Directional Credit asset allocation Personal Consumption

PCE Expenditures Price Index
Global growth
Inflation CPI
Commodities momentum
Duration PPI
Unemployment forecast
momentum Break-evens (IL - FI Treasuries)

t
Slope of the curve Real yields

Real yield (net of inflation) Industrial production

en
Forward yield Cross Market Capacity utilisation
Inflation forecast Output Inventory
Unemployment forecast
LT Retail sales
Liquidity risk Housing starts
Currency risk GDP growth
Non-farm payroll First Friday 08:30am
Capital

pm
Change in definition
Algorithmic trading GDP
Economy In a job
High frequency trading (HFT) Unemployment Participation rate
Jobs Looking for a job
Arbitrage
'natural unemployment'
Trading ideas
N

Volatility Average hourly earnings

Flow Wages
Hedge funds Minimum wage
Long short funds Productivity
Asset managers What influences the Disposable income
Players Rates Markets

lo
O

Insurance companies Current account (EX-IM)

uk
Traders
Misery index Inflation + unemployment rate
Central Banks
Balance of payments
Fundamental
Measures the state of the
15 members vote economy in the cycle
e
FOMC
IG

Interest Rates Commodities

'dot plot' Gold
3

Liquidity Policy Funding pattern

o.
Growth New cash
ev
Treasury budget
Reserves Central Banks Deficit
Interventions Ability to repay
Analysis
T-bills
Change in regulation
EP

Increase of UST (10-30) of Supply Technical factors

+1% leads to increase in yield Tax payment dates

c
of the 20YR USD by 7.7bp Bonds
Current
Elections
Cycles
D

Short end
Nationalisation vs privatisation

predicts recession in 1 year

weak GDP growth

strong GDP growth

inverted curve

flat curve

steep curve
10yr-3mth a predictor of GDP growth/recession
Long end

The yield curve

n. Political Type of government
Terror
International treaties
Budget announcements
Steepness of the curve
o
Propensity to save
&

Cannot predict the size of change

Mentality
TED Spread People
Values and beliefs
10YR UST-FED Funds Habits
ig

GDP-FED Funds Economic yield curve Harvest

Climate
volume
g

Liquidity Storms
Bid-offer spread
Environment Commodities
Domestic
ep

Waste
Foreign
in

Water
Mar
Energy
Jun
Certain months are heavier on News
Sep the supply side
Dec Supply and demand Line

or end of the month Types of charts Bar Candle stick

in

etc
@

Jan
Certain months are heavier on
Oct the demand side Moving average
Dec Trend lines
Support
Greece Channels
a

Refinancing Technical Resistance

Italy
Patterns Wedge
Positions
Head and shoulders
on

Expectations
Elliot waves
Tr

Duration
Fibonacci waves
Convexity
etc
Carry trades
Trading strategies
Long-short trades
Cliff-effects lead to Trading ideas
over-performance
ig

Put/Call ratio

Earnings
Market
Business margins
Leverage Ratings (Credit assessment)
Indebtedness
ep

Defaults

Deteriorations
Credit rating changes
Improvements
Spreads
Duration Times Spread
Sovereigns
Municipalities
Agencies
Covered bonds Financials
Credit curves
Cyclical
Types
Defensive

Auto
Consumer goods and services Categories
Industrial goods and services
Electricity
Utilities Corporates
Water, gas, multi
Sectors
Oil and gas
Telecom
Health care
Construction & materials
Technology
Regions

Money markets
Vol of S&P500 VIX

2xVIX Future UVIX The fear factor Equities

Vol of the VIX VVIX Comparison to other asset classes

Currencies
Real estate
Correlation
especially during market crash Contagion

64
 What influences the
Rates Markets

t
en
Lic.oec.HSG Petros Geroulanos MNLP
LT

pm
N

lo
O

uk
1
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

65
 Forecasting aim

 To anticipate where the marketing is going, by

Creating expectations
Individual
Consensus
Priced in?
Comparison with actual rates when published

t
en
LT

pm
N

lo
O

uk
3
e
IG

o.
ev
EP

c
D

o n.
&

ig

Forecasting
g

ep
in
in

 The yield curve

a

Now
on

Future
Tr

 Expectations
ig

Individual forecast
time horizon of forecast
ep

maturity of the instrument

Consensus forecast
Priced in through trading and positioning
 Comparison with actual data

66
 Analysis

 Fundamental analysis
Economy
Politics
People
Environment
News

t
Technical analysis

en

LT
Types of charts
Patterns

pm
Trading strategies
N

lo
O

uk
5
e
IG

o.
ev
EP

c
D

o n.
&

ig

Purpose
g

ep
in
in

 To create a view
a

 To reach an investment decision

on
Tr

ig
ep

67
 Fundamental analysis

 Economy
 Political situation
 People’s mentality
 Environment
 News

t
en
LT

pm
N

lo
O

uk
7
e
IG

o.
ev
EP

c
D

n.o
&

ig

Economy
g

ep
in

 Purchasing Power Parity

Real interest rate differentials
in

 Balance of payments
a

GDP & GDP growth

on


Tr

 Inflation
Misery index
ig

 Commodity prices
ep

 Current account (EX-IM)

 Treasury budget
 Technical factors

68
 GDP
 Output
 GDP growth
 Jobs
 Productivity
 Inventory
 Disposable income

t
en
LT

pm
N

lo
O

uk
9
e
IG

o.
ev
EP

c
D

n.o
&

ig

Output
g

ep
in
in

 Industrial production
a

 Capacity utilisation
on
Tr

 Inventory
 Retail sales
ig

 Housing starts
ep

10

69
 Jobs

 Non-farm payroll
First Friday 08:30am
 Unemployment
Change in definition
Participation rate
In a job

t
Looking for a job

en
LT
'natural unemployment'
 Wages

pm
Average hourly earnings
N

Minimum wage
lo
O

uk
11
e
IG

o.
ev
EP

c
D

o n.
&

ig

Inflation
g

ep
in

 Real yields
in

 Monetary policy
a

 Breakeven (Index-linked - fixed income Treasuries)

on
Tr

 Indices
RPI
ig

PCE (Personal Consumption Expenditures Price Index)

ep

CPI
PPI

12

70
 Misery index

Combination of
 Inflation rate
 Unemployment rate

t
en
LT

pm
N

lo
O

uk
13
e
IG

o.
ev
EP

c
D

o n.
&

ig

Commodities
g

ep
in
in

 Measures the state of the economy in the cycle

a

 Gold
on
Tr

ig
ep

14

71
Treasury budget

 Funding pattern
 New cash
 Deficit
 Ability to repay

t
en
LT

pm
N

lo
O

uk
15
e
IG

o.
ev
EP

c
D

n.o
&

ig

Technical factors
g

ep
in
in

 Change in regulation
a

 Tax payment dates

on
Tr

ig
ep

16

72
Political

 Elections
Current
Cycles
 Nationalisation vs privatisation
 Type of government
 Terror

t
en
 International treaties
LT
 Budget announcements

pm
N

lo
O

uk
17
e
IG

o.
ev
EP

c
D

n.o
&

ig

People
g

ep
in
in

 Propensity to save
a

 Mentality
on
Tr

 Values and beliefs

 Habits
ig
ep

18

73
Environment

 Harvest
 Climate
 Storms & floods
 Commodities
 Waste
Water

t


en
 Energy
LT

pm
N

lo
O

uk
19
e
IG

o.
ev
EP

c
D

n.o
&

ig

News
g

ep
in
in

 Geopolitics
a

 Trade routes
on
Tr

 Energy supply
ig
ep

20

74
 Fundamental Analysis Summary
 Purchasing Power Parity  Treasury budget (funding
 Real interest rate differentials pattern, new cash)
 Balance of payments  Technical factors
 Current account (exports –  Change in regulation
imports)  Tax payment dates
 GDP  Political factors
 Output  Elections
 Industrial production  Nationalisation versus
 Retail sales privatisation
 Housing starts  Type of government
 GDP growth  Terror
Inflation (RPI, PCE, CPI, PPI) People

D


t


Non-farm payroll  Propensity to safe

en


Unemployment  Mentality

LT
 Misery index  Values and beliefs
Productivity  Environmental

pm


 Capacity utilisation  Harvest

Disposable income  Climate
N

 Commodities  Storms & floods

 Commodities
lo
O

uk
21
 News
e
IG

o.
ev
EP

c
D

o n.
&

ig

Technical Analysis
g

ep
in

 Types of charts
in

 Line
@

 Bar
Candle stick
a

 etc
on
Tr

 Patterns
 Moving average
 Trend lines
ig

 Channels
Support
ep

Resistance
 Wedge
 Head and shoulders
 Elliot waves
 Fibonacci waves
 etc
 Trading strategies

22

75
 Technical Analysis

Types of charts Types of patterns / trading strategies

 Line  Moving average
 Bar  Trend lines
 Candle stick  Channels
 support
 resistance
 Wedge

t
 Head and Shoulders

en
Elliot waves
LT 

 Fibonacci waves

pm
 etc
N

lo
O

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23
e
IG

o.
ev
EP

c
D

o n.
&

ig

Market information
g

ep
in
in

 Yield curve
a

 Supply and demand

on
Tr

 Positions
 Expectations
ig

 Duration and convexity

ep

 Trading ideas
 Credit curves
 Comparison with other asset classes
The fear factor (VIX)

24

76
Yield curve

 Shape and change

 Steepness
 Economic yield curve

t
en
LT

pm
N

lo
O

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25
e
IG

o.
ev
EP

c
D

n.
o
&

ig

Predictor of GDP growth/recession

g

ep
in
in

 10yr-3mth
a

inverted curve
on

predicts recession in 1 year

Tr

flat curve
ig

weak GDP growth

steep curve
ep

strong GDP growth

Cannot predict the size of change

26

77
 Economic yield curve

 GDP-FED Funds

t
en
LT

pm
N

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O

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27
e
IG

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EP

c
D

n.o
&

ig

Supply and demand

g

ep
in

 Liquidity
 volume
in

 Bid-offer spread
Domestic
a

Foreign
on


Tr

 Certain months are heavier on the supply side

 Mar
 Jun
ig

 Sep
 Dec
ep

 or end of the month

 Certain months are heavier on the demand side
 Jan
 Oct
 Dec
 Refinancing
 Greece
 Italy
28

78
Flow Trading
 Capital
 Algorithmic trading
 High frequency trading (HFT)
 Arbitrage
 Trading ideas
 Volatility
 Players
Hedge funds

t
en
Long short funds
LT
Asset managers and insurance companies
Traders

pm
N

lo
O

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29
e
IG

o.
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EP

c
D

o n.
&

ig

Trading ideas
g

ep
in
in

 Carry trades
a

 Long-short trades
on
Tr

 Cliff-effects lead to over-performance

 Put/Call ratio
ig
ep

30

79
Credit curves

 Ratings and changes in ratings

 Spreads
 Duration Times Spread
 Categories and regions

t
en
LT

pm
N

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31
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EP

c
D

n.o
&

ig

Ratings (Credit assessment)

g

ep
in
in

 Earnings
a

 Business margins
on
Tr

 Leverage
 Indebtedness
ig

 Defaults
ep

32

80
 Credit rating changes

 Deteriorations
 Improvements

t
en
LT

pm
N

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33
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EP

c
D

n.o
&

ig

Comparison to other asset classes

g

ep
in
in

 Money markets
a

 Equities
on
Tr

The fear factor

VIX (Vol of the S&P500)
ig

UVIX (2x VIX)

VVIX (Vol of the VIX)
ep

 Currencies
 Real estate
 Correlation
 Contagion
especially during market crash
34

81
Central Bank Intervention

 Policy
Interest Rates and Dot Plot
Liquidity
Growth
Reserves
 Interventions

t
Supply

en

LT
T-bills
Bonds

pm
N

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35
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c
D

n.o
&

ig

Interest Rates
g

ep
in
in

 FOMC
a

15 members vote

on

'dot plot'
Tr

ig
ep

36

82
 Supply in Treasury Securities

 T-bills
 Bonds
Increase of UST (10-30) of +1% leads to increase in yield of the
20YR USD by 7.7bp

t
en
LT

pm
N

lo
O

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37
e
IG

o.
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EP

c
D

o n.
&

ig

Flow
g

ep
in

 Capital
in

Algorithmic trading
@

 High frequency trading (HFT)

a

Arbitrage
on


Tr

 Trading ideas
Volatility
ig

 Players
ep

Hedge funds
Long short funds
Asset managers
Insurance companies
Traders
Central Banks
38

83
 Investment decision

 Credit beta
 Credit asset allocation
 Liquidity risk
 Currency risk

t
en
LT

pm
N

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39
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&

ig

Credit beta (vol of portfolio vs market)

g

ep
in
in

 Macroeconomic Forecast
a

 Direction/Momentum
on
Tr

Duration
Key Rate Duration (KRD)
ig

 Liquidity
Reversion
ep

 Seasonality
 Credit Spread Duration
 Duration Times Spread

40

84
Credit asset allocation

 Macroeconomic forecast
 Single name / company assessment
 Sentiment and liquidity
 Valuation and reversion
 Duration
 Key rate duration

t
en
LT

pm
N

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&

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What influences rates?

g

ep
in
in

@
a

on
Tr

A lot!
ig
ep

42

85
 Corporate Bond Issuance
PETROS GEROULANOS

t
en
LT

pm
N

1
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&

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g

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PLAYERS
in
in

 INVESTORS
a

 WHOLESALE
on
Tr

 INSTITUTIONAL
 RETAIL
ig

 TRADING
 INVESTMENT BANKS
ep

 ISSUERS
 GOVERNMENTS
 MUNICIPALITIES
 CORPORATES

86
 Motivation of Issuer
 Finance need (Cash)
Current
In the future
 Maturity
 Currency

t
en
 Current Credit Perception
LT
 Bond Pricing (demand for bond)

pm
 Swap Pricing (demand for swaps)
N

lo
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c
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&

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g

ep

Issuing methodologies
in
in

 Auction / tender  Private placements

a

 Best-efforts  Taps
on
Tr

 Underwriting  Tranches
 Syndication
ig

 Fixed-price re-offer
ep

 Pot deals
 Book building

87
 THE ISSUING PROCEDURE
 The issuer talks to the new issues department
INVESTMENT BANK

I
S
S
NEW
U

D
ISSUES

t
DEPT.

en
E
TRADERS
LT
R

pm
N

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&

ig
g

ep

THE ISSUING PROCEDURE (II)

in
in

 New issues department talks to the sales force

a

on

INVESTMENT BANK
Tr

I
S BOND
ig

SALESFORCE
S
NEW
ep

U ISSUES
DEPT.
E
TRADERS
R

88
 THE ISSUING PROCEDURE (III)
 Sales force talks to the investors
INVESTMENT BANK

I I
S BOND N
SALESFORCE V
S E
NEW
U ISSUES S

D
DEPT.

t
E T

en
O
R
LT
R
S

pm
N

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on.
&

ig
g

THE ISSUING PROCEDURE (IV)

ep
in

 Issue is then traded with investors (primary)

in

@
a

on

INVESTMENT BANK
Tr

I I
S BOND N
ig

SALESFORCE V
S E
NEW
ep

U ISSUES S
DEPT.
E BOND T
TRADERS O
R
R
S

89
THE ISSUING PROCEDURE (V)
 Trading continues possibly to maturity (secondary)

INVESTMENT BANK

I
BOND N
SALESFORCE V
E
S

t
T

en
BOND
TRADERS O
LT
R
S

pm
N

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&

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g

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Auction
in
in

Primary dealers can bid (under revision)

a


on

Highest bidder on the price (lowest yield)

Tr

 Average price for small investors

ig

 Multiple bids mean oversubscription figures are skewed

ep

10

90
 Best efforts
 Bank sells on a success fee basis only
 No guarantee of funding for issuer
 Leads to ‘no efforts’

t
en
LT

pm
N

11

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&

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g

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Underwriting
in
in

Lead manager and others underwrite (guarantee)

a


on

 to the borrower
Tr

 the issue amount

 at a given price
ig

 Underwriter must buy all bonds, that can’t be sold in

ep

the market
 Underwriter looks for protection: Syndication

12

91
 SYNDICATION

LEAD-MANAGER

SENIOR MANAGER SENIOR-MANAGER

D
MANAGER CO-MANAGER CO-MANAGER CO-MANAGER CO-MANAGER

t
en
LT

pm
N

13

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&

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g

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Problems
in
in

 Syndicate members may front-run and hence

a

affect the price

on
Tr

 Issue may not be sold and hence kept on the

balance-sheet of the bank
ig

 High capital charge

ep

14

92
 Fixed-price re-offer (I)
 Establish amount to be raised
 Fix the re-offer spread
 Build syndicate
 Fix Government/benchmark yield
 Result: Re-offer yield

t
en
LT

pm
N

15

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&

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g

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Fixed price re-offer (II)

in
in

 Fix the coupon as low as possible

a

(to nearest 1/8 for Eurobond)

on
Tr

 Re-offer price (to syndicate)

ig

 Issue price (to investor)

Amount raised (to borrower)
ep

 All-in cost to borrower

 All-in cost spread over benchmark

16

93
 FIXED-PRICE RE-OFFER (III)
 Swap rate
 Sub-Libor

t
en
LT

pm
N

17

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&

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g

The “Pot” approach

ep
in

Introduced in the US in the late 1990’s

in


@

 A syndicate is set up but all orders are registered

a

with the lead manager

on
Tr

 Lead manager effectively takes orders brokered

by rest of syndicate and fills them, dealing and
ig

settling all trades with investors.

ep

 Lead manager and any co-lead manager will

underwrite the issue

18

94
 Book building
 Book building refers to the process of generating,
capturing, and recording investor demand for bonds
during their issuance process.
 The “book” is the off-market collation of investor
demand by the book runner
It is confidential to the book runner, issuer, and

D


t
en
underwriter.
LT
 The underwriter bears the risk of non-payment by an

pm
acquirer or non-delivery by the seller.
N

19

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&

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The time line

g

ep
in
in

Primary market Secondary market

@

Everything until the deal is  Everything thereafter

a

fully issued
on
Tr

ig
ep

20

95
 When-issued bonds (WI)
 When-issued, is an abbreviated term for 'when,
as and if issued'. It indicates the trading (buying
and selling short) in a bond, which is authorised
to be issued, but not issued. In other words, it
applies to only those bonds which are put up for
auction but not yet sold.

t
en
LT

pm
N

21

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&

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g

On-the-run bonds
ep
in
in

 Bonds just issued and actively traded.

a

They will fall ‚off-the-run‘ and become replaced by

on


Tr

the next WI.

ig
ep

22

96
 Rating Agencies
Description S&P Moody’s
Investment grade AAA to BBB- Aaa to Baa3
Low Credit BB+ to B- Ba1 to B3
Speculative CCC+ to D Caa to C

t
en
LT

pm
N

23

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g

Investment Grade Ratings

ep
in

Description S&P Moody’s

in

Prime AAA Aaa

a

AA+ Aa1
on
Tr

High quality AA Aa2

AA- Aa3
ig

A+ A1
ep

Upper medium A A2
A- A3
BBB+ Baa1
Lower medium BBB Baa2
BBB- Baa3 24

97
 Speculative Grades
Description S&P Moody’s
BB+ Ba1
Low grade BB Ba2
BB- Ba3
B+ B1

t
en
Highly speculative B B2
LT

pm
B- B3
N

25

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g

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in
in

@
a

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ig
ep

98
 Asset-backed Securities
and Structured Products

t
By Petros Geroulanos

en
LT

pm
N

1
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g

Asset-backed Securities
ep
in
in

 Special Purpose Vehicle (SPV)

a

Special Investment Vehicle (SIV)

on
Tr

Special Purpose Company (SPC)

Special Investment Company (SIC)
ig

Requires a bundle of assets

ep

 Assets get pooled or structured

 The re-issuance may be under different terms

99
 Types of ABS
 Pass-through Securities
 Mortgage-backed Securities
 Credit card-backed Securities
 Car loan-backed Securities
 Star bonds

t
en
 Trade receivables (revolving ABCP)
LT
 Re-securitisation

pm
N

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Wrapped bonds
ep
in
in

 A wrapped security is insured or guaranteed by a third

a

party. A third party or, in some cases, the parent

on
Tr

company of the ABS issuer may provide a promise to

reimburse the trust for losses up to a specified amount.
ig

Deals can also include agreements to advance principal

and interest or to buy back any defaulted loans. The
ep

third-party guarantees are typically provided by AAA-

rated financial guarantors or monoline insurance
companies.

http://en.wikipedia.org/wiki/Credit_enhancement
4

100
 Covered bonds
 Covered bonds are debt securities backed by
a cash flow from mortgages or public sector
loans. They are similar in many ways to ABS,
but covered bonds remain on the issuer’s
consolidated balance sheet.

t
en
http://en.wikipedia.org/wiki/Covered_bond
LT

pm
N

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&

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Structured Products
ep
in
in

 Tailor-made to specific investment demand

a

Highly flexible
on


Tr

 Large and small amounts possible

ig

 Often uses the banks credit rating as a basis

ep

101
 Types of structured products
 Credit-linked notes / wrapped bonds
 Interest-rate linked notes
 FX-linked notes
 Equity-linked notes
Option-linked notes

D


t
en
LT

pm
N

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in
in

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ig
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102
 Interest Rate Arithmetic

t
en
LT

pm
N

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g

ep
in

FINANCE is about 1 thing only

in

@
a

on

CASH
Tr

the right AMOUNT

ig

at the right PLACE

at the right TIME
ep

 arranged in a specific contractual form

This is called a product or instrument
2

103
 Agenda
 Dealing with Cash Flows
Financial Arithmetic

t
en
LT

pm
N

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Dealing with Cash Flows

in
in

 Time Value of Money

a

Present Value and Future Value

on


Tr

 Simple and Compound Interest

ig

 Discount and Compound Factors

Yield and Rate of Return
ep

 Market Conventions

104
 Time Value of Money

t
en
LT
0.6
Present Future

pm
N

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&

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g

ep
in

Loss of Value of 1$
in

@
a

Reasons:
on
Tr

1  Inflation (expected)

Loss  Time Preference

ig

(Opportunity Cost)
ep

 Default Risk
0.6
Present Future
(expected)

105
 Compensation
1.2

Compensation
1

Loss

t
0.8

en
LT
0.6

pm
Present Future
N

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Compensation
in
in

@
a

Measured as:
on
Tr

Interest Rates (R)

ig


ep

106
 Present and Future Value
1.2
Interest Rate R = 10% = 0.10
Calculate
1 for 1 year !

t
0.8

en
LT
0.6

pm
Present Value Future Value
N

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c
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&

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g

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Calculation of Future Value

in
in

$1.1 = 1 + 0.1
a

= 1 + (1 x 10%)
on
Tr

= 1 + (1 x 0.10)
ig

FV1 = PV + (PV x R)
ep

FV1 = PV x (1 + R)

10

107
 Summary
1.2
CF = 1.10
FV1 = 1.10
1

t
0.8

en
LT

pm
0.6

Now 1 Year
N

11

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Re-invest for Another Year

in
in

@
a

on

1.4
Tr

(1 + 0.10)
1.2 Calculate
FV1 = 1.10
FV2
ig

1
ep

0.8

0.6

Now 1 Year 2 Year

12

108
 Calculate Future Value for 2
1.1 x (1 + 0.10) = $1.21
FV1 x (1 + R) = FV2

PV x (1 + R) x (1 + R) = FV2
PV x (1+R)2 = FV2

t
en
LT
PV x (1 + R)N = FVN

pm
N

13

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Annual Compounding Formula

in
in

FV  PV1  R
N
a

on
Tr

ig
ep

14

109
 Summary Future Value 2

1.4

1.10
1.2 1.10 FV2 = 1.21

t
0.8

en
LT
0.6

Now 1 Year 2 Year

pm
N

15

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in

Compounding Cash Flows

in

@
a

on
Tr

ig

FV
PV
ep

0 1

16

110
 Compound Factor
FVN = PV x (1 + R)N

CF = (1 + R ) N

t
en
LT

pm
N

17

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Discounting Cash Flows

in
in

@
a

on
Tr

ig

FV
PV
ep

0 1

18

111
 Discount Factor
FVN = PV x (1 + R)N
PV = FVN/ (1 + R) N
DF = 1/(1 + R)N

t
en
LT

pm
N

19

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Summary for Annual Compounding

in
in

 PV 1  R N
a

FV
on

N
Tr

 1  FV N
PV  FV   
 1  R N 1  R N
ig

N

ep

1
 FV N  N  FV N 
R    1 N   1
 PV   PV 

20

112
 Sweepstake
Bond Price: Par
Annual Coupon: 10%
Maturity: 20 years
Yield to Maturity: 10%
(Coupons reinvested at Yield)

t
en
LT
 How exposed is an investor to the
reinvestment assumption?

pm
 What % of the FV is interest on interest?
N

21

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Sweepstake Result
in
in

FVN = PV x (1+R)N
a

on

FV20 = 100 x (1+0.10)20

Tr

FV20 = 672.749
ig

-Interest =-200.00
ep

-Principal =-100
Int. on Interest =372.749 =55.41%

22

113
 Multi-period Compounding
𝑅
𝐹𝑉 , 𝑃𝑉 1
𝑃
𝐹𝑉 , 1
𝑃𝑉 𝐹𝑉 ,
𝑅 𝑅
1 1
𝑃 𝑃

t
en
LT
, ,
𝑅 , -1 1

pm
N

23

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IR Conversion Capital Markets

ep
in
in

2
@

 R 
PV (1  R )  PV  1  s 
a

a
 2 
on
Tr

2
 R 
(1  R a )   1  s 
 2 
ig

Therefore :
ep

2
 R 
R  1  s   1
a
 2 

R s
 
2 1  Ra  1  2
24

114
 Continuous compound formula
𝐹𝑉 𝑃𝑉 𝑒

t
en
LT

pm
N

25

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Money Market Calculations

in
in

Interest Rate = 10%

a

Calculate
on

1
Tr

FV
ig

for 1£
0.8
ep

0.6

Now 182 Days

26

115
 Future Value
182
FV  1  10% x
365
 Actualdays
FV   PV  PVxRx 
 Basisyear 
D

t
en
LT
FV  PV  1  Rx 
A
 B

pm
N

27

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Calculation
in
in

FV = PV x (1 + R x A/B)
a

FV = 1 x (1 + 10% x 182/365)
on
Tr

FV = 1.04986
ig
ep

28

116
 Summary for Money Markets
 A
FVA, B  PV 1  R 
 B
FV 1
PV   FV
 A  A
1  R  1  R 

t
 B  B

en
LT
 FV B
R  1

pm
 PV A
N

29

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IR Conversion Money Markets

ep
in
in

 From 365 to 360:

a

360
on

 R365 actual 
Tr

R 360 equivalent
365
ig
ep

 From 360 to 365:

365
R 365 equivalent
 R360 actual 
360

30

117
 Example IR Conversion MM
R 360 R 365
R = 10 % equivalent equivalent

R 360 actual 10% 10.138889%

t
en
LT
R 365 actual 9,863014% 10%

pm
N

31

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Yield
in
in

 is the Interest Rate applied

a

at the beginning of the period

on


Tr

ig
ep

32

118
 Rate of Return
 is the Interest Rate applied
 at the End of the period

t
en
LT

pm
N

33

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Simple Yield
ep
in
in

 A simple yield calculation that is

a

often used to calculate the yield on

on
Tr

both bonds and the dividend yield

for stocks.
ig

 This yield calculates what

ep

percentage the actual dollar

coupon payment is of the price the
investor pays for the bond
 Mainly used for JGB’s
34

119
 Simple Yield Calculation
100  BondPrice
Coupon 
Maturity ( yrs)
Yield  100%
Simple
BondPrice
100  99
2
2.22%  5 100%
99

t
en
LT
 This does not included capital gain/loss!

pm
N

35

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Market Conventions*
ep
in
in

UK Rest
a

on

GBP, RUR, CNY, CNH USD, EUR, CHF, JPY

Tr

SGD, HKD, MYR, INR IDR

Market Money Capital Money Capital

ig

Actual Actual Actual Actual 30

ep

Basis 365 Actual 360 360

*always check
36

120
 Variations: Market Conventions
 Actual/365:
 Actual/365F:
 Actual/360:
 30/360:
30E/360:

D


t
en
 Actual/Actual:
LT

pm
N

37

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Summary
in
in

 Time Value of Money

a

Present Value and Future Value

on


Tr

 Simple and Compound Interest

ig

 Discount and Compound Factors

Yield and Rate of Return
ep

 Market Conventions

38

121
 Fundamentals of
Fixed Income Markets
D

t
en
LT
Petros Geroulanos

pm
Lic.oec. HSG, MNLP
N

1
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Content
ep
in
in

 Basics and jargon

a

 Bond market instruments

on
Tr

 Bond market sectors

Investment grade
ig

Emerging markets
ep

 Key indictors

122
 Loans and Bonds
 Loans are typically bilateral agreements between a
lender and a borrower.
 Bonds are typically the same agreements securitised.
This allows to ‘tranche’ one large loan and to sell parts
of it to multiple investors.
It also allows to pool many small loans together.

t
The cashflows are the same.

en

LT
 As long as we understand the legal difference, we can
use the terms loans and bonds interchangeably for

pm
the purpose of evaluating the cash flows.
N

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&

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Rates
g

ep
in
in

Money Market Rates Notes / Bonds

@

Up to 1 year Longer than 2 years

a

 
on

T-Bills US-Treasuries
Tr

 
ig
ep

123
 Bond market instruments
 Standard instruments
 Credit instruments
 Non-standard instruments

t
en
LT

pm
N

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Fixed Rate Bond or Loan

in
in

@
a

on
Tr

ig

Coupon
Principal
ep

0 1 2 3 4 5
6

124
 Floating Rate Note (FRN) or Loan

Coupon
Principal

t
en
LT

pm
0 1 2 3 4 5
N

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Standard instruments
ep
in

Fixed-rate bond
in


@

Fixed coupon: 3.38%

a

Floating-rate note (FRN)

on


Tr

Libor + 25bp
ig

 Treasury Inflation Protected Securities (TIPS)

Fixed coupon: 0.5%
ep

Capital adjusts according to CPI

Capital gain is taxable

125
 TIPS
 Maturities: 5, 10, 20 or 30 years
 Pricing: Issued by auction
 Coupon: Fixed by the Fed
 Principal: Adjusted by CPI

Example:

t
Principal 100 USD

en

LT
 Coupon 0.5%
 If CPI 0%, payment: 0.5% on 100 = 0.50 cts

pm
 If CPI 2%, payment: 0.5% on 102 = 0.51 cts
If CPI 1%, payment: 0.5% on 99 = 0.495 cts
N

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TIPS with negative interest rates?

ep
in
in

 So far, the Treasury hasn’t been willing to issue a

a

TIPS with a zero or negative coupon interest rate. So

on
Tr

when yields are negative, it sets the coupon rate at

0.125% and then lets buyers pay up at auction to get
ig

the resulting yield that is negative to inflation.

ep

10

126
 Government bonds by size
 Federal government bonds
US Treasury Bonds (UST)
JGB’s (Japan)
China
GILTS (UK)
BTP’s (Italy)

t
OAT’s (France)

en
LT
Bunds (Germany)
Fixed-coupon marketable bonds (MCMB) Canada

pm
Mexico Government Bond
N

 http://www.oecd.org/finance/Sovereign-Borrowing-Outlook-in-OECD- 11

lo
O

Countries-2019.pdf

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Supra-national (Multilateral agencies)

ep
in

agencies
in

World bank / IMF

a


on
Tr

 EIB, EBRD
 IDB, (Inter-American Development Bank)
ig

 CAF (Development Bank of Latin America)

ep

 AfDB, ADB
 Islamic Development Bank

12

127
Municipal bonds
 Higher credit risk than federal government
Tax revenue
No licence to print money
 Interest lower than UST?

D
Tax free

t
en
Muni-Treasury Ratio (75-80%)
LT


AAA Muni / UST

pm
The difference to 100% should reflect the tax
N

break 13

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Muni-Treasury Ratio example

ep
in
in

UST 4%, Muni 3% > Ratio 75%

a


on
Tr

 If tax rate is 25%, the yield of M and T are the same

 However
ig

Munis are less liquid

ep

Supply and demand are different for UST vs Munis

Investor base is different
Munis react to future tax rates more

14

128
 Non-standard instruments
(attach bells and whistles):
 Collared FRN
 Step-up Coupon Bond, Amortising Bond
 Dual Currency Bond
 Index-linked Bond (other than inflation)
Callable, puttable

t


en
Perpetual
LT


 Convertible

pm
 Payment In Kind (PIK)
N

 Contingent Convertibles (CoCo’s) 15

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Benchmark bonds
ep
in
in

 Is a standard of comparison
a

 Criteria to qualify as a benchmark

on
Tr

High traded volume

Large issue size
ig

Recent issuance to reflect ‘current coupon’

ep

Standard maturities
2, 5, 10, 30
 Swaps better meet such criteria for
JPY, EUR, GBP, CHF and more
16

129
 Bond market overview
 Issuers and credit markets
 Size
 Instruments
 Duration
Drivers

D


t
en
LT

pm
N

17

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Issuers and credit markets

ep
in
in

 Government and Public Sector Entities (PSE)

a

Supranationals
on


Tr

 Municipalities
ig

 Corporates
Investment grade (≥BBB)
ep

High-yield (≤BB)
 Emerging markets issuers (sovereign and corporate)

18

130
 Size
 Government bond markets are large
Not all are liquid
Benchmarks
 Rest is very fragmented
Liquidity is a problem

t
en
LT

pm
N

19

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Duration of comparable bonds

ep
in
in

Long duration = Risk on Short duration = Risk off

@

Long maturity Short maturity

a

 
on

Low coupon High coupon

Tr

 

 Low yield  High yield

ig
ep

 Government bonds have  High-yield bonds have lower

higher duration duration

20

131
 Yield curve
 Shapes
 Key indicators
 Drivers

t
en
LT

pm
N

21

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Key indicators
ep
in
in

 https://tradingeconomics.com/
a

https://www.marketwatch.com/Economy-
on


Tr

Politics/Calendars/Economic
ig
ep

22

132
 Bond/Loan Pricing
and Risk

t
Petros Geroulanos

en
LT
Lic.oec. HSG, MNLP

pm
N

1
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&

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Bonds and Loans

in
in

 Fixed Rate Coupon Bonds and Loans

a

Floating Rate Notes

on


Tr

 Non-standard structures
ig
ep

133
 Fixed Rate Bond or Loan

Coupon
Principal

t
en
LT

pm
0 1 2 3 4 5
N

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Floating Rate Note (FRN) or Loan

in
in

@
a

on
Tr

Coupon
ig

Principal
ep

0 1 2 3 4 5

134
 Non-standard Structures
(attach bells and whistles):
 Collared FRN
 Step-up Coupon Bond/Loan, Amortising Bond/Loan
 Dual Currency Bond/Loan
 Index-linked Bond/Loan (Inflation-linked)
 callable, puttable
 Perpetual

t
en
 Convertible
LT
 Payment In Kind (PIK)

pm
 Contingent Convertibles (CoCo’s)
N

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FI MARKET ANALYSIS
in
in

 Bond/Loan Pricing
a

on
Tr

 Duration
ig
ep

135
 BOND/LOAN PRICING
N
1
PD   CFn x
n 1 (1+ y)n

PD  Dirty Price
CFn  Cash flow at time n
n = Time from 1 to N (n  A/B)

t
en
N = Maturity
LT
y = Yield to maturity
A  Actual Days

pm
B  Basis i.e. days in a year
N

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EXAMPLE
in
in

Dirty Price of a 5-year bond/loan with a 4% annual coupon yielding 3%.

a

on

Time N CF DF PV
Tr

1 4 1/(1+3%) ^1 = 3.8835
2 4 1/(1+3%) ^2 = 3.7704
ig

3 4 1/(1+3%) ^3 = 3.6606
4 4 1/(1+3%) ^4 = 3.5539
ep

5 104 1/(1+3%) ^5 = 89.7113

TOTAL 104.5797

136
BOND/LOAN PRICING with broken dates
Dirty Price of a 2.5-year bond/loan with a 4% annual coupon yielding 3%.

Time* N CF DF PV
0.5 4 1/(1+3%) ^0.5 = 3.9413
1.5 4 1/(1+3%) ^1.5 = 3.8265
2.5 104 1/(1+3%) ^2.5 = 96.5918
TOTAL 104.3596

D
* Time
is the day fraction based on market convention,

t
here 30/360 (0.5 = 180/360).

en
LT

pm
N

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INTERPRETATION of Result
in
in

@
a

 104.3596 reflects the present value of the Cash Flows.

on
Tr

 The seller has included the PV of the next coupon in

this price.
ig

To find the value of the bond/loan without the share of the

ep

interest due to the next coupon we must remove the

interest that has already accrued.

This is the Accrued Interest (see next slide).

10

137
 ACCRUED INTEREST
PC = PD - AI

PC = Clean Price
PD = Dirty Price
AI = Accrued Interest

t
en
= (Actual Days*/ Basis) x Coupon
LT

pm
*From previous coupon payment day to now
N

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ACCRUED INTEREST
in
in

PC = PD - AI
a

on
Tr

PC = 104.3596 - 180/360x4
ig

PC = 102.3596
ep

*From previous coupon payment day to now

12

138
BOND/LOAN PRICING with broken dates
Dirty Price of a 2.5-year bond/loan with a 4% annual coupon yielding 3%.

Time N CF DF PV
0.5 4 1/(1+3%) ^0.5 = 3.9413
1.5 4 1/(1+3%) ^1.5 = 3.8265
2.5 104 1/(1+3%) ^2.5 = 96.5918

t
Dirty Price (PV) 104.3596

en
LT
Accrued Interest 0.5*x4 - 2.00
Clean Price 102.3596

pm
*A/B = 180/360
N

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DURATION
in
in

 Maturity is a poor measure of the life of a

a

bond/loan because it does not take account

on
Tr

when cash flows are actually received.

ig

Duration, discovered by Macauley in 1938, is a

ep

time weighted measure of the cash flows.

 In the loan market, it is also called ‘Average
Life’.

14

139
 UNDERSTANDING DURATION
 Time weighted average of PV:
Calculation of the point in time

 Risk measure:
Capital Loss versus Income Gain

t
en
Fulcrum:
LT


pm
 Balance
N

15

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TIME-WEIGHTED AVERAGE
ep
in

of discounted cash flows

in

@
a

on
Tr

N
nCFn
 1  y  D  Duration
ig

n CF  Cash Flow at time n

n 1 n
D
ep

n=Time from 1 to N
N
CFn
 1  y 
N= Maturity
n y = Yield to Maturity
n 1

16

140
 CALCULATING DURATION
Duration of a 5-year annual par bond/loan with a 4% coupon (yield = 3%)

Time N CF DF PV TIME WEIGHTS N*PV

1 4 1/(1+3%) = 3.8835 x1= 3.8835

2 4 1/(1+3%)^2 = 3.7704 x2= 7.5408
3 4 1/(1+3%)^3 = 3.6606 x 3 = 10.9818
4 4 1/(1+3%)^4 = 3.5539 x 4 = 14.2156

t
en
5 104 1/(1+3%)^5 = 89.7113 x 5 = 448.5565
LT
TOTAL 104.5797 485.1782

pm
Duration = 485.1782 = 4.64 years
104.5797
N

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DURATION for Broken Dates

in
in

Duration of a 2.5-year annual bond/loan with a 4% coupon (yield = 3%)

a

on

Time N CF DF PV TIME N*PV

Tr

WEIGHT
0.5 4 1/(1+3%)^0.5 = 3.9413 x 0.5 = 1.9707
ig

1.5 4 1/(1+3%)^1.5 = 3.8265 x 1.5 = 5.7398

2.5 104 1/(1+3%)^2.5 = 96.5918 x 2.5 = 241.4795
ep

TOTAL 104.3596 249.1900

Duration = 249.1900 = 2.38 years

104.3596

18

141
 RISK MEASURE
Scenario:
 Bond/loan description:

Maturity: 10 years
Coupon: 10%
Yield: 10%

t
en
Priced at par (100)
LT
 Market rates change to 12%

pm
and remain there until maturity
N

19

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CAPITAL LOSS
in
in

CAPITAL LOSS ON BOND HOLDING

@

1 2 3 4 5 6 7 8 9 10
a

0.00
on

-2.00
Tr

-4.00

-6.00
ig

-8.00

-10.00
ep

-12.00

20

142
 VALUE OF THE BOND/LOAN
PRICE OF A 10 YEAR BOND/LOAN WITH A 10% COUPON, YIELDING 12% THROUGHOUT ITS LIFE

102.00
100.00

t
98.00
96.00

en
94.00
92.00
90.00
88.00
LT
86.00
84.00
82.00
0 1 2 3 4 5 6 7 8 9 10

pm
N

21

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ADDITIONAL INCOME
in
in

ADDITIONAL INTEREST ON INTEREST FROM THE HIGHER REINVESTMENT RATE

18
a

16
on
Tr

14

12
ig

10

8
ep

0
1 2 3 4 5 6 7 8 9 10

22

143
 BREAK-EVEN
CAPITAL LOSS VERSUS ADDITIONAL INTEREST ON INTEREST

-1

-1

D
1 2 3 4 5 6 7 8 9 10

t
en
LT
Duration 6.76 years

pm
N

23

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g

EFFECT
ep
in
in

 Bond price (loan value) falls

a

creating capital loss

on
Tr

 Reinvestment rate increases

ig

creating an income gain

ep

24

144
 MEANING OF DURATION
Duration
is the point in time when

Capital Loss = Income Gain

and

t
en
Capital Gain = Income Loss
LT

pm
N

25

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&

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g

ep

DURATION = THE FULCRUM

in
in

42.41
PRESENT VALUES OF THE CASH FLOWS
Maturity: 10 years
a

Coupon: 10%
on

Yield: 10%
Tr

ig
ep

9.09 8.26 7.51 6.83 6.21 5.64 5.13 4.67 4.24

1 2 3 4 5 6 7 8 9 10
FULCRUM POINT 6.76 YEARS

26

145
 SESNSITIVITY of Duration
 Coupon up, Duration down
 Yield up, Duration down
 Maturity up, Duration up

t
en
LT

pm
N

27

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MACAULAY'S THEOREM
in
in

 The additional income wipes out the capital

a

loss at the duration of the bond/loan

on
Tr

thus "guaranteeing" the return of 10% (the

purchase yield).
ig
ep

28

146
 MACAULAY’S ASSUMPTIONS
 Flat yield curve
 Parallel shift in the yield curve
 Relatively small yield movement

t
en
LT

pm
N

29

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g

ep

DURATION TIME DECAY

in
in

Duration of 10 1/2 % bond at 10% yield with

a

on

5
just more than 5 years to maturity
Tr

4
ig

2
ep

1
0
TIME

30

147
THE PRICE - YIELD RELATIONSHIP
PRICE YIELD RELATIONSHIP FOR A 30 YEAR BOND/LOAN WITH A 10% COUPON

450

400

350

300
price

250

t
200

en
150

100
LT
50

pm
0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 0.2

yield to maturity
N

31

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EP

c
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&

ig
g

EQUIVALENT DEFINITION FOR DURATION

ep
in

Duration is part of the gradient (1. Derivative)

in

D = -1/PD*(dp/dy)*(1+y)
a

on
Tr

Where:
ig

D = Duration
PD= Dirty Price of bond/loan (old)
ep

dy = Change in yield (new yield - old yield)

dp = Change in price (new price - old price)
y = yield (old)
32

148
EQUIVALENT DEFINITION of Duration
In words: the first derivative of price (viewed as a
function of yield) divided by the total price and -1.

The more mathematically minded can convince

themselves of the equivalence of the two definitions by
working out the derivative longhand.

t
en
This approximation is only valid for small yield changes.
LT

pm
N

33

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EP

c
D

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&

ig

PRICE CHANGE
g

ep
in
in

This can be rearranged to:

@
a

dP = D/(1+y) * (-PD) * dy
on
Tr

D/(1+y) is sometimes referred to as

ig

modified Duration
ep

This is a relationship between change in yield and

change in price for small yield movements.
34

149
 Modified Duration


t
en
LT

pm
N

35

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&

ig
g

Using Duration as follows

ep
in
in

 PD  Dur mod
@

dp    dy
a

  P  Dur mod
A A A A
on

  1   HR
Tr

dp  dy
B D B B B
ig

dp  dp
A B
ep

Where :
HR  HedgeRatio

36

150
 Uses of Duration
 Interest Rate Risk Measure expressed in time
 Interest Rate Risk Measure expressed in $ (DV01)
 To make investment decisions (Bond/loan selection)
If R↑: buy D↓
If R↓: buy D↑
 Dassets = Dliabilities
Portfolio immunisation

t
Hedging

en
LT
 Duration based Trading (Spread Trading)
Credit Spread

pm
Time Spread
N

Cross-currency Spread 37

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O

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IG

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EP

c
D

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&

ig
g

Price sensitivity of comparable bonds/loans

ep
in
in

Long duration = Risk on Short duration = Risk off

@

Long maturity Short maturity

a

 
on

Low coupon High coupon

Tr

 

 Low yield  High yield

ig
ep

 Government bonds/loans  High-yield bonds/loans have

have higher duration lower duration

38

151
 Money Market
Instruments
D

t
en
LT
Petros Geroulanos

pm
N

1
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IG

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EP

c
D

on.
&

ig
g

Money Market Instruments

ep
in
in

 LOANS AND DEPOSITS

CERTIFICATES OF DEPOSIT (“CD”s)
a


on

 Negotiable certificates of deposit (NCD)

Tr

 Negotiable instruments of deposits (NID)

TREASURY BILLS (“T-BILLS”)
ig

 FORWARDS and FUTURES

ep

 FORWARD RATE AGREEMENT (“FRA”)

 REPURCHASE AGREEMENTS (REPO)
 OTHER
 Note issuance facility (NIF)
 Revolving underwriting facility (RUF)
2

152
 Tr EP
a in IG
in O
ep g N
ig &

Lombard street

153
LT
on D D
@ ev
e
ep lo
Map of Money Markets

ig pm
o

4
3

n. en
co. t
uk
 Money Market Instruments
Tradable Non-tradable

 May be sold prior  Have to be held to

to its final maturity maturity

t
en
LT

pm
N

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O

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IG

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EP

c
D

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&

ig
g

ep

Money Market Instruments

in
in

Interest bearing
a


on

´BASED ON ACCRURAL BASIS

Tr

E.G. DEPOSITS, CDs

ig
ep

 Discounted
INTEREST ON A DISCOUNT BASIS
E.G. CP, TREASURY BILLS

154
 Interest Bearing Instrument

Interest
Notional

t
en
LT

pm
0 1
N

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O

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e
IG

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EP

c
D

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&

ig
g

ep

Discounted Paper
in
in

@
a

on
Tr

ig

Price
Par
ep

155
 USD CHF EUR GB JPY SG MY
P D R

t
en
LT

pm
N

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e
IG

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EP

c
D

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&

ig
g

Money market rates

ep
in
in

@
a

on
Tr

ig
ep

10

156
 Libor transition

t
en
LT

pm
N

11

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IG

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EP

c
D

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&

ig
g

Forward Rates
ep
in
in

THE FORWARD RATE IS THAT IMPLIED BY

@

THE PRESENT YIELD CURVE AS A

a

BREAKEVEN FUTURE BORROWING OR

on
Tr

LENDING COST
ig

 It is the price today for a cashflow in the

future
ep

 THE FORWARD CURVE IS OFTEN (MIS[?]-)

INTERPRETED AS THE MARKET’S
PREDICTION OF FUTURE RATES

12

157
 Forward Rates

Cash Flow 2
Cash Flow 1

t
en
LT

pm
0 1 2
N

13

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EP

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&

ig
g

ep

Forward Rates
in
in

 BORROW CHF 100 MILLION FOR SIX

a

MONTHS (183 DAYS) AT 5.00%

on
Tr

 LIABILITY IN SIX MONTHS

100,000,000 (1 + 183 / 360 x .05) =
ig

102,541.666.67
ep

 INVEST FOR A YEAR AT 6.00%

 PROCEEDS IN A YEAR
 100,000,000 (1 + 365 / 360 x .06) =
106,083,333.33 14

158
 Forward Rates
106.083

100 6 months

12 months

D
100

t
en
LT
102.542

pm
N

15

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EP

c
D

on.
&

ig
g

ep

Forward Rates
in
in

Net Flows
106.083
a

on
Tr

6 months
ig
ep

12 months

102.542

16

159
 Forward Rates
 AT WHAT RATE DO WE HAVE
TO BORROW TO BREAK EVEN ?

 [106,083,333.33 / 102,541.666.67 -
1] x 360 / 182

t
en
LT
= 6.83%

pm
N

17

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EP

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&

ig
g

Forward Rate Formula

ep
in
in

𝒍
a

𝒍
on
Tr

𝒍
𝑨𝒔 𝑨𝒍
𝒔 𝒍 𝒔
ig

𝒔
𝒔
ep

18

160
 Forward Rate Agreement (FRA)

Buyer Pays
Floating Rate
Buyer Receives
Fixed Rate

t
en
LT

pm
0 1 2

Settle for difference!

N

19

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EP

c
D

o n.
&

ig
g

ep

FRA Important Dates

in
in

t0: Agree the deal

@


a

on
Tr

 t1 - 2 days: Fixing of Libor

ig

t1: Payment of Difference

ep

 t2: Maturity Date

20

161
 FRA Jargon
 An FRA is settled for difference at the beginning
of the interest bearing period.
 The seller of the FRA (rate) is the payer of the
fixed rate.
 It is similar to a forward and a interest rate swap.

t
en
LT

pm
N

21

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EP

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D

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&

ig
g

FRA Settlement Amount

ep
in
in

× ×
FRA SA =
a

on

× ×
Tr

ig

L = Libor
R = Contract Reference Rate (FRA)
ep

A = Contract Amount
D = Days in Contract
B = Day Basis (360 or 365)

22

162
 Interest Rate Futures
 Exchange-traded forward rate
 Standardised delivery periods
 Contract types:
1-month Forwards
3-month Forwards

t
en
 Initial Margin to open an account
LT
 Daily Marking-to-Market

pm
 Subject to margin calls
N

23

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EP

c
D

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&

ig
g

ep

Summary
in
in

@
a

 Money Markets
on
Tr

Deposits
Bills
ig

Forwards
ep

FRA’s
Futures

24

163
INTEREST RATES - MARKET
Dec 31 Over Change One Three Six One
night Day Week Month month month month year
US$ Libor* 0.11460 -0.001 0.000 0.013 0.16950 0.25520 0.35740 0.62880
Euro Libor* -0.13429 0.001 -0.012 -0.127 0.00857 0.05786 0.14000 0.29571
£ Libor* 0.46688 - - -0.001 0.50319 0.56213 0.68444 0.97588
Swiss Fr Libor* -0.01700 0.002 -0.003 -0.007 -0.04400 -0.06300 -0.03360 0.03440

t
en
Yen Libor* 0.04429 - -0.001 -0.003 0.07500 0.11214 0.14514 0.26614

LT
Canada Libor* - - - - - - - -

m
Euro Euribor - - - - 0.02 0.08 0.17 0.33

op
Sterling CDs - - - - 0.53 0.60 0.68 0.93
O

uk
US$ CDs - - - - 0.00 0.14 0.20 0.47

el
IG
Euro CDs - - - - -0.14 -0.05 0.05 0.21

o.
ev
US o’night repo 0.32 0.160 0.160 0.060
EP

.c
Fed Funds eff 0.13 - - 0.030
D

on
US 3m Bills 0.04 0.030 0.020 0.025
&
SDR int rate 0.05 - - -

ig
ng

EONIA -0.060 0.025 -0.009 -0.089

EURONIA ep
0.0070 0.155 0.145 -0.077
ni

RONIA -0.0501 -0.517 -0.525 -0.516

@
ai

SONIA 0.3565 -0.072 -0.071 -0.066

on
Tr

LA 7 Day Notice 0.35%-0.30%

Over One One Three Six One
ig

night Week months months months year

ep

Interbank £ We are no longer able to provide these figures.

164
*Libor rates come from ICE (see www.theice.com) and are fixed at 11am UK time. Other data sour-
ces: US $, Euro & CDs: dealers; SDR int rate: IMF; EONIA: ECB; EURONIA, RONIA & SONIA: WMBA.
LA 7 days notice: Tradition (UK).
 Money Market
Benchmark Rates
D

t
en
LT
Petros Geroulanos

pm
N

1
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EP

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D

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&

ig

Libor replacements (Main)

g

ep
in

USD EUR JPY GBP CHF

New index SOFR ESTER (€STR) TONA(R) SONIA SARON
in

Name Secured Euro Tokyo Sterling Swiss

a

Overnight Short-term Overnight Overnight Average

Financing Interest Average Index Rate
on

Rate rate Rate Average Overnight

Tr

Secured / Secured Unsecured Unsecured Unsecured Secured

Unsecured

Publication 8am+ 9am+ 5:15pm 9am+ 6pm

ig

Agent FRBNY ECB BoJ BoE SIX Exchange

ep

Transactions ALL 50 Banks ALL ALL

Term-structure SOFR AVG ESTER Swaps OIS TONAR SONIA SARON Swaps
& Swaps Swap Swaps

Calculation All Avg. of mid 50% ALL ALL

Pricing EONIA-9bp
2

165
 Libor replacements (More)
CAD AUD HKD SGD MYR

New CORRA AONIA HONIA SORA MYOR

index
Name Canadian
Overnight
Repo Rate
Average
Secured / Secured Unsecured Unsecured Unsecured Unsecured
Unsecured
Publication

t
Agent BoC RBoAUS TMA MAS BNM

en
LT
Transactions Volume-
weighted
Term-structure

pm
Calculation
N

Pricing
3

lo
O

uk
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EP

c
D

o n.
&

ig
g

Libor replacements (More)

ep
in
in

CNY HKD ZAR

@

New index SHIBOR SABOR

a

on

Name South African

Tr

Benchmark ON
rate on deposits
Secured /
Unsecured
ig

Publication
ep

Agent HKMA Resbank

Transactions

Term-structure

Calculation

Pricing
4

166
 Tr EP
ain IG
in O
ep g N
ig &

167
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
 Description and Purpose of Markets

t
en
LT

m
N

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O

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el
IG

o.
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SIFMA Research
EP

.c
D

US Repo Fact Sheet

on
&

January 2021
ig
ng

ep
ni

This report provides a detailed description of the U.S. repurchase agreement (repo) markets, including
ai

discussing: product types, participants and regulations. It also provides outstanding and collateral statistics for
on
Tr

repo and reverse repo securities in the bilateral, general collateral finance (GCF) and tri-party repo markets.

This report is based on statistics form the SIFMA Research databases. For data updates, and to view all other
ig

SIFMA Research databases and reports, please go to: www.sifma.org/research

ep

US Repo Market Fact Sheet Page | 1

168
 Description and Purpose of Markets

Contents
Description and Purpose of Markets.................................................................................................................................................... 3
Defining Repo Markets ....................................................................................................................................................................... 3
Types of Repo Markets....................................................................................................................................................................... 3
Repo Market Participants.................................................................................................................................................................... 4
Repo Regulation................................................................................................................................................................................. 4

t
Repo Chart Book................................................................................................................................................................................ 6

en
LT
Bilateral Repo Markets ....................................................................................................................................................................... 6
GCF Repo Markets............................................................................................................................................................................. 9

m
Tri-Party Repo Markets..................................................................................................................................................................... 11
N

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Appendix: Methodology and Sources ................................................................................................................................................ 12
Appendix: Primary Dealer List ........................................................................................................................................................... 13
O

uk
Authors ............................................................................................................................................................................................ 14
el
IG

o.
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EP

.c
D

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&

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ng

ep
ni

@
ai

on
Tr

ig
ep

SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On
behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors,
equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets,
informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional
development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).
For more information, visit http://www.sifma.org.

This report is subject to the Terms of Use applicable to SIFMA’s website, available at http://www.sifma.org/legal. Copyright © 2021

US Repo Market Fact Sheet Page | 2

169
 Description and Purpose of Markets

Description and Purpose of Markets

Defining Repo Markets

A repurchase agreement (repo) is a financial transaction in which one party sells an asset to another party with a
promise to repurchase the asset at a pre-specified later date (a reverse repo is the same transaction seen from the
perspective of the security buyer). Repos can be overnight (duration one day) or term (duration up to one year,
albeit some are up to two years and the majority are three months or less). The repo market enables market
participants to provide collateralized loans to one another, and financial institutions predominantly use repos to

t
manage short-term fluctuations in cash holdings, rather than general balance sheet funding.

en
LT
In general, repos aid secondary market liquidity for the cash markets (for example, U.S. Treasuries/UST), allowing
dealers to act as market makers in a very efficient manner. Market makers stand ready to buy and sell securities,

m
providing liquidity to markets. These firms must take the other side of trades when there are short-term buy and sell
imbalances in customer orders. Healthy repo markets provide them the necessary cash and access to securities to
N

op
perform these actions and keep secondary cash markets running effectively. The ability to finance and efficiently
O

source securities contributes to lower interest rates paid by the issuers, most notably the U.S. Treasury, which

uk
lowers debt servicing costs borne by taxpayers. el
IG

o.
The repo markets allow investors to manage excess cash balances safely and efficiently. Dealers also benefit from
ev
significantly reduced funding costs, the capacity to finance long positions in securities and the ability to borrow
EP

.c
securities to cover short positions to satisfy client needs. Long holders of securities can also gain incremental
D

returns by engaging in repo transactions with cash investors for securities they own but have no immediate need to
sell. on
&

Types of Repo Markets

ig
ng

While a broad array of assets may be financed in the repo market, the most commonly used instruments include
ep

UST, federal agency securities (agency), high quality mortgage-backed securities (MBS), corporate bonds
(corporates) and money market instruments (MM).
ni

The repo market can be split into two main segments:

ai

on

• Bilateral Repo – The bilateral repo market has investors and collateral providers directly exchange money
Tr

and securities, absent a clearing bank. Bilateral repo transactions can either allow for general collateral or
impose restrictions on eligible securities for collateral. Bilateral repo is preferred when market participants
ig

want to interact directly with each other or if specific collateral is requested.

ep

• Tri-Party Repo – The tri-party repo market is named as such given the role played by clearing banks in
facilitating settlement. Clearing banks act as an intermediary, handling the administrative details between
the two parties in the repo transaction. Tri-party repo is used to finance general collateral, with investors
accepting any security within a broad class of securities. According to the Federal Reserve Bank of New
York (New York Fed), market participants view tri-party repo as more cost efficient.

US Repo Market Fact Sheet Page | 3

170
 Description and Purpose of Markets

There is also the general collateral finance (GCF) repo market, which is offered by the Fixed Income Clearing
Corporation (FICC), a central clearing counterparty. GCF repo is predominantly used by securities dealers, who
negotiate the trade on an anonymous basis and then submit it to FICC. FICC then interposes itself as the legal
counterparty to both sides of the repo transaction.

Repo Market Participants

Securities dealers are at the heart of the repo market, operating in all repo market segments. The diagram on the
following page shows the interaction of market participants in both repo market segments described above.
Additional participants in the repo market include:

t
en
Financial institutions – Primary dealers (see appendix for a current list), banks, insurance companies,
•
LT
mutual funds, pension funds, hedge funds

m
• Governments – The New York Fed (used in its implementation of monetary policy), other central banks,
N

op
municipalities
O

uk
• Corporations
el
IG

o.
ev
These entities all benefit from the security, operational efficiency and low funding costs available in the repo market.
EP

.c
Repos offer cash providers collateralization (with additional margin requirements in most cases) marked-to-market
D

daily to ensure continuing protection. The operational efficiencies developed through tri-party repo and the largely
on
centralized settlement mechanism for repos further minimize risks. Standardized documentation, broadly accepted
by market participants, provides further certainty for market participants.
&

ig
ng

Repo Regulation
ep

Prior to the financial crisis, some financial institutions used repos to fund leveraged position taking in securities. As
ni

asset prices declined during the crisis, repo lenders increased the amount of collateral required, limiting the level of
ai

repo activity for some investors holding leveraged portfolios. This created a funding shortfall and forced investors to
decrease leverage by selling assets, leading to even lower asset valuations. This fed back into additional asset
on
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sales, and the circle went round and round. Repos backed by government securities also faced stress. Flight to
safety tendencies drove increased demand for these standalone assets, leading to shortages of available collateral
ig

in the repo market.

In light of this, the New York Fed works continuously with market participants to monitor repo infrastructure and
ep

recommend reforms as necessary, to ensure these markets remain stable sources of funding during periods of
market stress. The New York Fed also provides data for market participants on the repo markets. While
comprehensive data for all segments of repo markets are not available, data is provided for certain segments of and
specific firms operating in this market.

US Repo Market Fact Sheet Page | 4

171
 Description and Purpose of Markets

Bilateral Repo

Cash Investors:
$ $
-Prime Services Clients
-Hedge Funds Securities
-Hedge Funds
-Asset Managers Dealers
-Others

D
Securities Securities

t
-Others

en
LT

m
Tri-Party Repo
N

op
O

uk
el
IG

Cash Investors:

o.
$
ev
-Money Market Mutual
Funds
Securities
EP

.c
Dealers
D

-Securities Lenders

-Others
Securities on
&

ig
ng

ep
ni

@
ai

Clearing
on
Tr

Banks
ig
ep

Sources: Federal Reserve Bank of New York, SIFMA

US Repo Market Fact Sheet Page | 5

172
 Repo Chart Book

Repo Chart Book

Bilateral Repo Markets

• Average daily aggregate repo and reverse repo outstanding $4.6T, +1.0% Y/Y
• Average daily repo outstanding $2.6T, +2.2%
• Repo: 71.5% overnight, 28.5% term; 67.0% UST, 19.1% MBS, 6.3% TIPS
• Average daily reverse repo outstanding $1.9T, -0.5% Y/Y
• Reverse repo: 47.7% overnight, 52.3% term; 78.3% UST, 11.8% MBS, 8.4% TIPS

t
en
Avg Daily Outstanding
LT

m
N

op
O

uk
el
IG

Reverse Repo
42.7%

o.
ev
Repo
57.3%
EP

.c
D

on
&

ig
ng

Average Daily Outstanding ($T)

ep

Repo Reverse Repo

4.9 4.9
5.0 4.6
4.5
ni

4.4
4.5 4.2
4.0 4.0
@

4.0 3.9
4.0
ai

3.5
on

3.0
Tr

2.5
2.0
ig

1.5
1.0
ep

0.5
0.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Sources: Federal Reserve Bank of New York, SIFMA estimates

Note: Data prior to 3/27/2013 includes other financing activity

US Repo Market Fact Sheet Page | 6

173
 Repo Chart Book

Repo

Avg Daily Outstanding - Repo Collateral - Repo

Agency
Equities ABS
0.9% Other
2.0% 0.5% 1.5%
Corporates
2.6%
Term TIPS
28.5% 6.3%

MBS

D
19.1%

t
en
Overnight
71.5%
LT UST
67.0%

m
N

op
Average Daily Outstanding - Repo ($T)
O

uk
Overnight Term
3.0 2.7 2.7 2.7 el
IG

2.6 2.6
2.4

o.
2.5
ev
2.2 2.2 2.2 2.2
EP

2.0

.c
D

1.5

1.0
on
&

0.5
ig
ng

0.0
ep

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
ni

Avg Daily Outstanding - Repo, Overnight ($B) Avg Daily Outstanding - Repo, Term ($B)
@
ai

2,000 1,863 1,000 922 934 931

1,835 1,810 1,805 910
1,800 1,720 900
on

805
Tr

1,600 1,475 1,510 1,496 800 747 747 744

1,402 1,453 725
692
1,400 700
ig

1,200 600
1,000 500
ep

800 400
600 300
400 200
200 100
0 0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Sources: Federal Reserve Bank of New York, SIFMA estimates

Note: Data prior to 3/27/2013 includes other financing activity

US Repo Market Fact Sheet Page | 7

174
 Repo Chart Book

Reverse Repo

Avg Daily Outstanding - Reverse Repo Collateral - Reverse Repo

Agency ABS
Corporates 0.4% Other
0.3% 1.0%
0.8%

TIPS
8.4%

MBS
11.8%
Overnight
Term 47.7%

D
52.3%

t
en
LT UST
78.3%

m
N

op
Average Daily Outstanding - Reverse Repo ($T)
O

uk
Overnight Term
2.5
el
IG

2.2 2.2

o.
2.0 1.9
ev
2.0 1.8 1.8 1.8
1.7 1.8 1.7
EP

.c
1.5
D

1.0 on
&

0.5
ig
ng

0.0
ep

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
ni

Avg Daily Outstanding - Reverse Repo, Overnight ($B) Avg Daily Outstanding - Reverse Repo, Term ($B)
@
ai

1,000 928 1,400 1,295

908 1,283
859 884
900
on

812 789 1,200 1,108

Tr

800 739 755 763 1,051 1,071

729 1,017 984 1,018
700 1,000 925 926
ig

600
800
500
600
ep

400
300 400
200
200
100
0 0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Sources: Federal Reserve Bank of New York, SIFMA estimates

Note: Data prior to 3/27/2013 includes other financing activity

US Repo Market Fact Sheet Page | 8

175
 Repo Chart Book

GCF Repo Markets

• GCF repo total par amount $27.2T, -20.1% Y/Y

• GCF repo average daily par amount $108.4B, -20.5% Y/Y
• GCF collateral 59.1% MBS, 40.9% UST

GCF Repo Total Par Amount GCF Repo Total Par Amount ($T)
MBS UST Agency

t
en
90
77.4
80

70 LT 72.8
64.4

m
UST 60 55.2
50.4
40.9% 46.1
50
N

op
40 33.3 34.1
30.8
27.2
O

MBS 30

uk
59.1%
20
el
IG

10

o.
ev
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
EP

.c
D

Total Par Amount ($T) - MBS

on
Average Daily Par Amount ($B) - MBS
&

35 140
31.0 122.5
ig
29.2 117.4
30 120
ng

25.2 101.7
24.4 24.2 97.6 96.8
25 100
ep

21.5 20.9 21.6 86.0 83.8 86.4

20 18.5 80 74.1
ni

16.1 64.1
15 60
@
ai

10 40
on

5 20
Tr

0 0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
ig
ep

Sources: Depository Trust & Clearing Corporation (DTCC), SIFMA estimates

US Repo Market Fact Sheet Page | 9

176
 Repo Chart Book

Total Par Amount ($T) - UST Average Daily Par Amount ($B) - UST

40 37.5 37.6 160 148.1 150.3

35.9 144.1
35 140

30 27.9 28.3 120 111.7 113.4

25 100
20.7 82.7
20 80

15 12.5 60 49.9
11.1 44.3
9.9 39.6

t
10 8.0 40 32.4

en
5 20

0
2011 2012 2013 2014 2015 2016 2017
LT
2018 2019 2020
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

m
N

op
Total Par Amount ($T) - Agency Average Daily Par Amount ($B) - Agency
O

uk
10 40
9
9.0
el 35.5
IG

35
7.7 31.1
8

o.
ev
30
7
25
EP

6 5.3 21.1

.c
5 20
D

4.0 15.9
4
3 2.5
15

10
on 10.0
7.3
&

2 1.2
1 5
ig
0 0
ng

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
ep
ni

Sources: Depository Trust & Clearing Corporation (DTCC), SIFMA estimates

@
ai

on
Tr

ig
ep

US Repo Market Fact Sheet Page | 10

177
 Repo Chart Book

Tri-Party Repo Markets

• Tri-party repo collateral 48.8% UST, 35.0% Agency MBS/CMOs

• Tri-party repo cash investor median margin levels range from 2% (UST) to 8% (ABS)

Tri-Party Repo by Collateral Tri-Party Repo Cash Investor Median Margin

Non-Agency Agency ABS (Non-IG) 8.0%
ABS & MBS Securities
Other CMO Private Label (Non-IG) 8.0%
2.2% 1.4%

t
Corporates 1.5% Corporates (Non-IG) 8.0%
5.0%

en
Equities 8.0%
Equities
6.2%
LT ABS (IG)
Municipality Debt
CMO Private Label (IG) 5.0%
7.0%
7.0%

m
Corporates (IG) 5.0%
UST Money Market 5.0%
48.8% International Securities 3.5%
N

op
Agency CMOs 3.0%
Agency Agency Debentures & Strips 2.0%
O

MBS &

uk
Agency MBS 2.0%
CMOs
35.0% UST excl Strips 2.0%
UST Strips el
2.0%
IG

0% 2% 4% 6% 8% 10%

o.
ev
EP

.c
Sources: Federal Reserve Bank of New York, SIFMA estimates
D

Note: Data as of 12/09/2020

on
&

ig
ng

ep
ni

@
ai

on
Tr

ig
ep

US Repo Market Fact Sheet Page | 11

178
 Appendix: Methodology and Sources

Appendix: Methodology and Sources

• Bilateral Repo (Primary Dealer)

o Data – Primary dealer financing values include both triparty and bilateral agreements. Figures cover
financing involving U.S. government, federal agency, corporate and federal agency MBS securities.
Beginning in April 2013, figures also include equity and other securities; beginning in January 2015,
figures also break out ABS

t
en
o Source – Federal Reserve Bank of New York

• GCF Repo
LT

m
N
o Data – GCF Repo data are only overnight rates and dollar amounts. Figures are total nominal value

op
of GCF repos submitted for clearing to FICC
O

uk
 el
Treasury – Treasury securities are containing those securities 30-year or less
IG

o.
ev
 Agency – Agency debenture securities
EP

.c
D

 MBS – 30Y MBS securities issued by Fannie or Freddie

o Source – DTCC
on
&

ig
• Tri-Party Repo
ng

ep

o Data – Subcategories may no longer add up to totals listed due to omission of asset classes with
ni

fewer than 3 dealers

@
ai

o Source – Federal Reserve Bank of New York

on
Tr

ig
ep

US Repo Market Fact Sheet Page | 12

179
 Appendix: Primary Dealer List

Appendix: Primary Dealer List

The following is the current list of primary dealers, per the Federal Reserve Bank of New York (as of January 2021)

• Amherst Pierpont Securities LLC

• Bank of Nova Scotia, New York Agency
• BMO Capital Markets Corp.
• BNP Paribas Securities Corp.

t
• Barclays Capital Inc.

en
•
•
BofA Securities, Inc.
Cantor Fitzgerald & Co.
LT

m
• Citigroup Global Markets Inc.
• Credit Suisse AG, New York Branch
N

op
• Daiwa Capital Markets America Inc.
O

uk
• Deutsche Bank Securities Inc.
• Goldman Sachs & Co. LLC el
IG

• HSBC Securities (USA) Inc.

o.
ev
• Jefferies LLC
EP

• J.P. Morgan Securities LLC

.c
D

• Mizuho Securities USA LLC

•
•
Morgan Stanley & Co. LLC
NatWest Markets Securities Inc.
on
&

• Nomura Securities International, Inc.

ig
• RBC Capital Markets, LLC
ng

ep

• Societe Generale, New York Branch

• TD Securities (USA) LLC
ni

• UBS Securities LLC.

@

• Wells Fargo Securities, LLC

ai

on
Tr

ig
ep

US Repo Market Fact Sheet Page | 13

180
 Authors

Authors
SIFMA Research
Katie Kolchin, CFA, Director of Research
Justyna Podziemska
Ali Mostafa
research@sifma.org

t
en
LT

m
N

op
O

uk
el
IG

o.
ev
EP

.c
D

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&

ig
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ep
ni

@
ai

on
Tr

ig
ep

US Repo Market Fact Sheet Page | 14

181
 INTRODUCTION
to
FUTURES & OPTIONS

t
Petros Geroulanos

en
Lic.oec HSG, MNLP
LT

pm
N

1
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&

ig
g

ep

OVERVIEW
in
in

 Markets and History

a

on

Definitions of Contracts
Tr

 Exchange Traded Contracts

ig

versus Over the Counter (OTC)

ep

182
 The Market Places
 History

 Chicago

 Philadelphia

D
Singapore

t


en
LT
 London

pm
 Other
N

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O

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e
IG

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EP

c
D

n.o
&

ig
g

ep

History (I): The Past

in
in

@
a

1848 Chicago Board of Trade

on
Tr

 grain
 ‘to arrive’
ig

20 May 1874 Chicago Produce Exchange

ep

 butter
 eggs
 poultry
 other farm products 4

183
 History (II): Birth
26 Sept 1919: CPE renames to
Chicago Merchantile Exchange

1971: Collapse of Bretton Woods

May 1972: CME Inaugurates IMM

t
(International Money Market)

en
LT
21 April 1982: CME Inaugurates IOM

pm
International Option Methods
N

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

History (III): Market growth

in
in

30 Sept 1982: LIFFE Opens in London

a

on
Tr

1984: CME/SIMEX Link

Mutual offset = fungibility
ig

GLOBEX
ep

1992: LIFFE merges with LTOM

1995: Euro-$ ceases at LIFFE
1998: DTB/EUREX takes over BUND

184
 History (IV): Mergers
DTB and Soffex cooperate as
EUREX
2007: CME and CBoT merge
2007: NYSE buys Euronext, including

t
-Liffe (London)

en
LT
-Paris
-Amsterdam

pm
2012: CCP
N

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O

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e
IG

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EP

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&

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g

ep

Definition of Contracts
in
in

 The Products
a

on
Tr

Forward
ig

Future
ep

Option

185
 Forward
 A contractual obligation
 between 2 parties
 to exchange a particular product
 at a set price
 on a set date

t
en
LT

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N

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O

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EP

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&

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g

ep

Forward Buyer
in
in

Agrees to:
a

on

pay the price

Tr

take delivery of the good

ig


ep

The buyer is ‘long’ the forward

10

186
 Forward Seller
Agrees to:

 Deliver the good

 At the agreed price

D
On the agreed date

t


en
LT

pm
N

11

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O

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EP

c
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n.o
&

ig
g

ep

Forward
in
in

 No cash is exchanged
a

on
Tr

 Until delivery date

ig
ep

12

187
 Future
An agreement between 2 parties to exchange:
 a particular good
 for a particular price
 at a particular date in the future.

t
en
All are specified on an organised futures exchange
LT
Margin payments (from day 1)

pm
N

13

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O

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EP

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Option
in
in

@
a

on

The right :
Tr

 to buy (or sell) a product

ig

 at a given price (strike)

ep

 at a specific date
 (Within a specific period)
There is a premium to be paid upfront
14

188
 The Contracts
 Description

 Delivery

 Fungibility of Contracts

t
en
LT

pm
N

15

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O

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e
IG

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EP

c
D

on.
&

ig
g

ep

CBoT Contracts
in
in

U.S. Treasury Bond Future - over 15 years

a


on
Tr

 10 yr. US-T Note Future - 6 1/2 - 10 years

ig

 5 yr. Treasury Note Future - 5 years

ep

16

189
 CME FX Contracts
GBP AUD

CAD EUR/YEN

JPY ROLLING SPOT

SWF CURRENCY FWD

t
en
EUR
LT

pm
N

17

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O

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e
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&

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g

ep

CME Contracts
in
in

Interest Rates: Equity:

a

S&P 500
on


USD-Libor
Tr

 NIKKEI 225
 EURO-Libor
ig

 FTSE 100
 90 DAY T-BILL
ep

 1 YR T-BILL

 1M - LIBOR

18

190
 LIFFE Contracts
INTEREST RATES: LONG-TERM RATES:
 3m -GBP  LONG GILT

 (3m- USD)  JGB (JAP)

 3m-EUR  UST-BOND

 BONO (SPAN.)

EQUITY:  BTP (ITL.)

t
FT-SE-100

en


 FT-SE-Mid 250
LT

pm
N

19

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O

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e
IG

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EP

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&

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g

ep
in

SYMEX Contracts
in

CME FX:
 USD-Libor
a

 GBP
CAD
on


Tr

FRF
 EURO-Libor 

 JPY
SWF
ig

 90 DAY T-BILL  EUR

ep

 1 YR T-BILL  AUD
 EUR/GEN
 Rolling Spot
 1M - LIBOR  Currency Fund

20

191
 CONTRACT SPECIFICATIONS
 UNIT OF TRADING
 DELIVERY MONTHS
 QUOTATION
 MINIMUM PRICE MOVEMENT
 TICK SIZE & VALUE

t
 EXCHANGE DELIVERY SETTLEMENT

en
PRICE (EDSP)
LT

pm
N

21

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O

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e
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D

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&

ig
g

Exchange Traded versus OTC

ep
in
in

Advantages
a

on

liquidity  no default risk

Tr

 centralisation  delivery avoided

 one place  leveraged risk
ig

opportunities
 all information
ep

 standardisation
 concentrated activity
 simplified pricing

22

192
 Exchange Traded versus OTC
Less default risk:
 Fair Market:
 Clearing house
guarantee  conduct of business rules
 margining  best execution rules
 membership rules  access
 multilateral netting  encourages competition

t
 reduces systematic price transparency

en


risk
LT

pm
N

23

lo
O

uk
e
IG

o.
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EP

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D

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&

ig

Exchange Traded versus OTC

g

ep
in

Disadvantages
 Restricted access  Limited liquidity
in

 centralisation  near contract months

 business hours  daily limits on trading ranges
a

 no confidentiality
on

 Basis risk
Tr

 standardisation  difficult to execute very large deals

 Hidden expenses
ig

 margining requires substantial

administrative resources
ep

 daily margins complicate funding

24

193
 FUTURES

t
Petros Geroulanos

en
LT

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DEFINITION
in
in

 A futures contract is a
a

standardised
on
Tr

legally binding
ig

agreement to buy or sell

a specific asset
ep

at a fixed time in the future

194
 Elements
 The contract constitutes a
trading unit
the ‘quality’ of the instrument

t
en
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CHARACTERISTICS
in
in

 Contract Size / Unit of Trading

a

 Delivery Month
on
Tr

 Last Trading Day

Quotation
ig

 Minimum Price Movement

ep

Tick Size & Value

 Trading Hours
 APT Trading Hours
4

195
 SUMMARY FUTURES
 Specifications
 Based on notional bonds
 What can you deliver?

t
en
LT

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&

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DELIVERY TIME
in
in

@
a

 Quarterly:
on
Tr

March, Jun, Sep, Dec

GILT:
ig

ANY BUSINESS DAY IN THE DELIVERY MONTH

ep

BUND
10th CALENDAR DAY or next
 Monthly
 Weekly
6

196
 DELIVERY
 Physical delivery
 Cash settled

t
en
LT

pm
N

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e
IG

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EP

c
D

n.o
&

ig
g

Physical delivery
ep
in
in

 Bonds (example)
a

Equities
on


Tr

 Commodities
ig

 Metals
FX (non-standard)
ep

 etc

197
 PRICE CONVERSION FACTORS
 Price of actual bond must be adjusted
 Each deliverable bond is given a Price
Factor

t
en
LT

pm
N

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&

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in

DELIVERY I
in

 Seller delivers a bond (sellers choice)

a

evaluated by
on


Tr

exchange delivery settlement price (EDSP)

ig

future price
price factor
ep

accrued interest

10

198
 DELIVERY II
Principal invoice amount = EDSP x Price Factor

Invoice amount = Principal invoice amount

+ Accrued Interest

t
en
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N

11

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WHICH BOND TO DELIVER?

in
in

 Cheapest to deliver
a

make the greatest profit to seller

on
Tr

makes the least loss to seller

compared to all other bonds
ig

 CTD Bond is known to all

ep

12

199
 CLEARING
 Novation of contracts
 How can clearing house take the risk?

t
en
LT

pm
N

13

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MARGIN SYSTEM
in
in

 INITIAL MARGIN
a

VARIATION MARGIN
on


Tr

Daily marking to market

ig

 INTRA-DAY MARGIN CALL

ep

14

200
 GEARING
 You pay (initial) margin only to gain
exposure to GBP 50,000 or EURO 250,000
 Compare to buying the underlying:
Actual profit remains the same

D
Capital invested is smaller using Futures

t
en
Return on investment is higher using
LT


Futures

pm
N

15

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FAIR PRICE
in
in

 Future = Cash and Carry

a

Sell Future (deliver bond)

on
Tr

Buy bond
Fund with cash
ig

Check cash flows

ep

16

201
FAIR FUTURES PRICE (not ex-div)
1
Fut fair  
Pfactor
  Rate financing  Days 
 Dirty Pr ice CTD  1 
 
 36500 
 
  Rateinvesting  Days 
  Coupons received  1  
  36500 

t
  AccruedInterest 

en
LT
 
 

pm
N

17

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PRICING in short
in
in

@
a

on

𝑷𝒓𝒊𝒄𝒆 = 𝑪𝒐𝒔𝒕 − 𝒃𝒆𝒏𝒆𝒇𝒊𝒕

Tr

ig
ep

𝑪𝒐𝒔𝒕 𝒐𝒇 𝒃𝒐𝒓𝒓𝒐𝒘𝒊𝒏𝒈 − 𝒄𝒐𝒖𝒑𝒐𝒏 𝒊𝒏𝒄𝒐𝒎𝒆

𝑷𝒓𝒊𝒄𝒆 =
𝑷𝒓𝒊𝒄𝒆 𝑭𝒂𝒄𝒕𝒐𝒓

18

202
 ACTUAL PRICE
 Depends on
Demand & Supply
Cash Market
Future Market
Financing Market

t
Room for arbitrage

en

LT

pm
N

19

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

LONG FUTURE
in

Profit
in

@
a

on
Tr

Stock Price
ig
ep

Purchase Price
Loss

20

203
 Profit SHORT FUTURE

Stock Price

t
en
LT
Sale price
Loss

pm
N

21

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

BASIS
in
in

@
a

Basis = Future - Spot

on
Tr

ig

= (Futures price x Price factor) -Spot

ep

= Cost of Carry

22

204
 Profit
BASIS

Bond
(Spot)

t
Future

en
LT

pm
Forward
N

23

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

BASIS CONVERGENCE
in
in

 At expiry
a

the price of futures is identical to

on


Tr

spot (cash price of bond)

ig
ep

24

205
 DELIVERY DATE
 Positive Yield Curve: Deliver Late
Bond yield higher than short term funding
 Negative Yield Curve: Deliver Early
Bond yield lower than short term funding

t
en
LT

pm
N

25

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

206
 OPTIONS

t
en
LT
Petros Geroulanos

pm
N

1
lo
O

uk
e
IG

o.
ev
EP

c
D

n.
o
&

ig
g

ep

Option Jargon
in
in

 Call-Put
a

 Buy-Sell (Write)
on
Tr

 Strike - X
 Break- Even
ig

 Premium
ep

 American - EU
 Early Exercise
 Exotic
 Right - not obligation

207
 Future
An agreement between 2 parties to exchange:

 a particular good
 for a particular price
 at a particular date in the future

t
en
All are specified on an organised
LT
futures exchange.

pm
N

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Option
in
in

@
a

The right :
on
Tr

 to buy (or sell) a product

 at a given price (strike)
ig

 at a specific date
ep

 (Within a specific period)

There is a premium to be paid upfront

208
 The Contracts
 Description

 Delivery

 Fungibility of Contracts

t
en
LT

pm
N

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep
in

Using Futures and Options

in

Parity Graphs
a


on
Tr

 Simple Strategies
ig

 Combining Different Products

ep

 Spreads

 Put-Call Parity
6

209
 Parity Graphs
 Long Future
 Short Future
 Long Call
 Short Call

D
Long put

t


en
LT
 Short Put

pm
N

lo
O

uk
e
IG

o.
ev
EP

c
D

n.
o
&

ig
g

ep

Long Future
in

Profit
in

@
a

on
Tr

Stock Price
ig
ep

Loss Strike

210
 Profit Short Future

Stock Price

t
en
LT
Loss Strike

pm
N

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig

Long Call (Buyer)

g

ep
in

Profit
in

@
a

on

Strike
Tr

Stock Price
ig

Premium
ep

Break -Even

Loss
10

211
 Short Call (Seller or Writer)
Profit

Break -even

Premium Stock Price

t
en
LT
Strike

pm
Loss
N

11

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig

Long Put (Buyer)

g

ep
in

Profit
in

@
a

on

Strike
Tr

Stock Price
ig

Premium
ep

Break -Even
Loss
12

212
 Short Put (Seller)
Profit
Strike

Stock Price

t
en
LT
Break -Even

pm
Loss
N

13

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig

SPREADS (I)
g

ep
in

LONG POSITION SHORT POSITION

in

1 2
a

on

Backspread Straddle Vertical

Tr

ig
ep

3 4

Call-Spread
(Put-Spread)
Bull Reversal
Bear
14

213
 SPREADS (II)
LONG POSITION SHORT POSITION
5 6
Mombo
Strangle Combo

t
en
7 8
LT
Butterfly

pm
+c -2c+c
N

15

lo
O

uk
e
IG

o.
ev
EP

c
D

n.
o
&

ig
g

ep

Investment Strategies
in
in

 Covered Call
a

on
Tr

 Covered Put
ig
ep

16

214
 Option Value
Call = Parity + Basis + Volatility Value
- Option Carry

Put = Parity - Basis + VV - ORT

t
en
LT

pm
N

17

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Parity
in
in

@
a

CALL
on

PUT
Tr

ig
ep

S-X X-S

18

215
 Basis (of hedge)
= Intrinsic Value

CALL PUT

F-S

D
S-F

t
en
LT

pm
N

19

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Volatility Value (I)

in
in

 Insurance Value
a

implied
on


Tr

 historical
 Binomial
ig

 Normal distribution
ep

20

216
 Volatility Value (II)
European: Insurance value

American: Insurance value

+
D

t
en
Possibility exercise
LT

pm
N

21

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Early Exercise
in
in

@
a

Exercise of an American-style put/call option

on
Tr

before its expiration date

ig
ep

22

217
 Pricing Factors
 Strike (Spot)
 Time
 Interest Rate
 Volatility

t
Market Conditions

en

LT

pm
N

23

lo
O

uk
e
IG

o.
ev
EP

c
D

n.
o
&

ig
g

ep

Pricing Jargon
in
in

INTRINSIC VALUE:
a

on
Tr

ITM (in the money)

ig

ATM (at the money)

ep

ATF (at the money forward)

OTM (out of the money)

24

218
 Fair Value
Intrinsic value (S-X) = Parity

t
Time Value (Rest)

en
LT

pm
N

25

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Greeks
in
in

 Delta
a

Gamma
on


Tr

 Vega (Kappa, Tau)

ig

 Rho
Theta
ep

Measure sensitivities
26

219
 Greeks (II)
 O = Price of Option
 S = Price of Spot
 V = Volatility
 R = Interest Rate
T = Time

D


t
en
LT

pm
N

27

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Greeks
in
in

Option
  DELTA 
a

on

Spot
Tr

ig

Change of value of the option

ep

if the price of the underlying (Spot) changes.

Hedge Ratio

28

220
 Gamma
Delta
  GAMMA 
Spot

Change in value of Delta

t
if Spot changes.

en
LT

pm
N

29

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Vega (Kappa, Tau)

in
in

Option
  Vega 
a

on

Volatility
Tr

Change in option value

ig

for change in Volatility.

ep

30

221
 Rho
Option
  Rho 
Interestrate
Change in option value

t
for a change in interest rates.

en
LT

pm
N

31

lo
O

uk
e
IG

o.
ev
EP

c
D

o n.
&

ig
g

ep

Theta
in
in

Option
@

  Theta 
a

Time
on
Tr

ig

Change of option value

ep

for change in time.

Time Decay

32

222
 Exotics
= Non Standard Options

Barrier options: knock in, out, touch

Bermuda: Specific dates
Average rate Option (Asian): Price = Average
Contingent Premium Option:
Out Option:

t
Alternative Currency Option:

en
Look-back Option: Sell looking back at
LT
high or low
Compound Option: Option on Option

pm
N

33

lo
O

uk
e
IG

o.
ev
EP

c
D

on.
&

ig
g

ep

Underlying assets
in
in

 Interest Rates
a

Currencies
on


Tr

 Commodities
ig

 Stocks & Stock-indexes

Energy
ep

 Weather
 Other

34

223
 D

t
en
LT

m
OPTIONS

op
O

k
el

u
IG

o.
ev
EXERCISES
EP

.c
D

on
&

ig
g

ep
in
EPIGON LTD
in

@ London SW10 9JZ

a

United Kingdom
on
Tr

ig

E-mail: petros@epigon.co.uk
ep

Web: www.epigon.co.uk

224
 D

t
en
LT

m
N

op
O

k
el

u
IG

o.
ev
EP

.c
A. BASIC OPTION STRATEGIES

on
B. OPTION SPREAD STRATEGIES

&

ig
g C. INVESTMENT STRATEGIES

ep
in
D. SYNTHETICS
in

@
E. PUT-CALL PARITY
a

on
F. DELTA HEDGING
Tr

G. CAPS, FLOORS & COLLARS

ig
ep

H. EXOTIC OPTIONS

225
A. BASIC OPTION STRATEGIES

Fill in the enclosed pay-off tables.

Draw the parity (pay-off) graphs for the following 4 positions.
What are the break-even points?
What is the maximum profit and loss?

t
en
LT

m
Position Strike Product Premium
(Price)

op
O

k
1) Buy 1.1750 Call @ 0.0025

el

u
IG
2) Buy 1.5050 Put @ 0.0020

o.
ev
EP
3) Write (Sell) 25 Call @ 2

.c
D
4) Write (Sell) 410 Put @ 7

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

226
A.1
Buy 1.1750 Call

Select prices of underlying Strike

in equal intervals 1.1650 1.1675 1.1700 1.1725 1.1750 1.1775 1.1800 1.1825 1.1850

t
en
Contract 1: +Call

LT
Premium 1: -0.0025
Total pay-off:

m
Break-even point:

op
Maximum profit:
Maximum loss:

k
el

u
IG

o.
ev
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

227
 Tr EP
ain IG
in O
ep g N
ig &

228
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
4
A.2
Buy 1.5050 Put

Select prices of underlying Strike

in equal intervals 1.5010 1.5020 1.5030 1.5040 1.5050 1.5060 1.5070 1.5080 1.5090

t
Contract 1: +Put

en
LT
Premium 1: -0.0020
Total pay-off:

m
Break-even point:

op
Maximum profit:
Maximum loss:

k
el

u
IG

o.
ev
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

229
 Tr EP
ain IG
in O
ep g N
ig &

230
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
6
A.3
Sell 25 Call

Select prices of underlying Strike

in equal intervals 21 22 23 24 25 26 27 28 29

t
Contract 1: -Call

en
LT
Premium 1: +2
Total pay-off:

m
Break-even point:

op
Maximum profit:
Maximum loss:

k
el

u
IG

o.
ev
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

231
 Tr EP
ain IG
in O
ep g N
ig &

232
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
8
A.4
Sell 410 Put

Select prices of underlying Strike

in equal intervals 390 395 400 405 410 415 420 425 430

t
Contract 1: -Put

en
LT
Premium 1: +7
Total pay-off:

m
Break-even point:

op
Maximum profit:
Maximum loss:

k
el

u
IG

o.
ev
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

233
 Tr EP
ain IG
in O
ep g N
ig &

234
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
10
A.1
Buy 1.1750 Call

Select prices of underlying Strike

in equal intervals 1.1650 1.1675 1.1700 1.1725 1.1750 1.1775 1.1800 1.1825 1.1850
Contract 1: +Call 0.0000 0.0000 0.0000 0.0000 0.0000 0.0025 0.0050 0.0075 0.0100

t
en
Premium 1: -0.0025 -0.0025 -0.0025 -0.0025 -0.0025 -0.0025 -0.0025 -0.0025 -0.0025 -0.0025

LT
Total pay-off: -0.0025 -0.0025 -0.0025 -0.0025 -0.0025 0.0000 0.0025 0.0050 0.0075

m
Break-even point: 1.1775
Maximum profit: Unlimited

op
Maximum loss: -0.0025

k
el

u
IG

o.
ev
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

11

235
A.2
Buy 1.5050 Put

Select prices of underlying Strike

in equal intervals 1.5010 1.5020 1.5030 1.5040 1.5050 1.5060 1.5070 1.5080 1.5090
Contract 1: +Put 0.0040 0.0030 0.0020 0.0010 0.0000 0.0000 0.0000 0.0000 0.0000

t
Premium 1: -0.0020 -0.0020 -0.0020 -0.0020 -0.0020 -0.0020

en
-0.0020 -0.0020 -0.0020 -0.0020

LT
Total pay-off: 0.0020 0.0010 0.0000 -0.0010 -0.0020 -0.0020 -0.0020 -0.0020 -0.0020

m
Break-even point: 1.5030
Maximum profit: Unlimited

op
Maximum loss: -0.0020

k
el

u
IG

o.
ev
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

12

236
A.3
Sell 25 Call

Select prices of underlying Strike

in equal intervals 21 22 23 24 25 26 27 28 29
Contract 1: -Call 0 0 0 0 0 -1 -2 -3 -4

t
Premium 1: 2 2 2 2 2 2 2

en
2 2 2

LT
Total pay-off: 2 2 2 2 2 1 0 -1 -2

m
Break-even point: 27
Maximum profit: 2

op
Maximum loss: Unlimited

k
el

u
IG

o.
ev
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

13

237
A.4
Sell 410 Put

Select prices of underlying Strike

in equal intervals 390 395 400 405 410 415 420 425 430
Contract 1: -Put -20 -15 -10 -5 0 0 0 0 0

t
Premium 1: 7 7 7 7 7 7 7

en
7 7 7

LT
Total pay-off: -13 -8 -3 2 7 7 7 7 7

m
Break-even point: 403
Maximum profit: 7

op
Maximum loss: Unlimited

k
el

u
IG

o.
ev
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

14

238
 Buy 1.1750 Call

0.0100

t
en
LT
0.0075

m
N

op
O

k
0.0050

el

u
IG

o.
ev
Profit/Loss

EP

.c
0.0025 Long Call

on
&
0.0000

ig
1.1650 1.1675 1.1700 1.1725 1.1750 1.1775 1.1800 1.1825 1.1850
g

ep
in
-0.0025
in

@
a

on
Tr

-0.0050
Price
ig
ep

15

239
 Buy 1.5050 Put

0.0030

t
en
LT
0.0020

m
N

op
O

k
0.0010

el

u
IG

o.
ev
Profit/Loss

EP

.c
0.0000 Long Put

D
1.5010 1.5020 1.5030 1.5040 1.5050 1.5060 1.5070 1.5080 1.5090

on
&
-0.0010

ig
g

ep
in
-0.0020
in

@
a

on
Tr

-0.0030
Price
ig
ep

16

240
 Sell 25 Call

t
en
LT
2

m
N

op
O

k
1

el

u
IG

o.
ev
Profit/Loss

EP

.c
0 Short Call

D
21 22 23 24 25 26 27 28 29

on
&
-1

ig
g

ep
in
-2
in

@
a

on
Tr

-3
Price
ig
ep

17

241
 Sell 410 Put

10

t
en
LT

m
5

op
O

k
el

u
IG
0

o.
ev
Profit/Loss

390 395 400 405 410 415 420 425 430

EP

.c
Short Put

on
-5

&

ig
g

ep
in
-10
in

@
a

on
Tr

-15
Price
ig
ep

18

242
B. OPTION SPREAD EXERCISES
Fill in the enclosed pay-off tables.
Draw the parity (pay-off) graphs for the following 8 positions.
What are the break-even points?
What is the maximum profit and loss?

t
en
Position Strike Product Premium

LT
1) Buy 100 Call @ 2

m
Buy 100 Put @ 1

op
2) Write 50 Call @ 2

k
Write 50 Put @ 1

el

u
IG
3) Buy 27 Call @ 3

o.
ev
Write 30 Call @ 2
EP

.c
4) Write 20 Call @ 2

D
Buy 23 Call @ 0.5

on
&
5) Buy 72 Put @ 2

ig
Buy 74 Call @ 1
g

ep
in
6) Write 76 Put @ 1
Write 78 Call @ 2
in

7) Buy 75 Call @ 3
@
a

Write 2x78 Calls @ 2

on
Tr

Buy 81 Call @ 1.5

ig

8) Write 75 Call @ 3
Buy 2x78 Calls @ 2
ep

Write 81 Call @ 1.5

19

243
Question B.1

Select prices of
underlying
in equal intervals 96 97 98 99 100 101 102 103 104

t
Contract 1:

en
LT
Contract 2:
Contract 3:

m
Contract 4:
Premium 1:

op
Premium 2:
Premium 3:

k
Premium 4:

el

u
IG
Total pay-off:

o.
ev
Break-even points:
EP

.c
Maximum profit:

D
Maximum loss:

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

20

244
 Tr EP
ain IG
in O
ep g N
ig &

245
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
21
Answer B.1

Select prices of
underlying
in equal intervals 96 97 98 99 100 101 102 103 104

t
Contract 1: +Call 0 0 0 0 0 1 2 3 4

en
LT
Contract 2: +Put 4 3 2 1 0 0 0 0 0
Contract 3:

m
Contract 4:
Premium 1: -2 -2 -2 -2 -2 -2 -2 -2 -2 -2

op
Premium 2: -1 -1 -1 -1 -1 -1 -1 -1 -1 -1
Premium 3:

k
Premium 4:

el

u
IG
Total pay-off: 1 0 -1 -2 -3 -2 -1 0 1

o.
ev
Break-even points: 97, 103
EP

.c
Unlimite

D
Maximum profit: d

on
Maximum loss: -3

&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

22

246
 Exercise 1
Long Straddle
= Backspread
2

t
en
LT
1

m
N

op
O

k
0

el

u
96 97 98 99 100 101 102 103 104

IG

o.
ev
Long Straddle
EP

.c
-1

on
&

ig
-2 g

ep
in
in

@
-3
a

on
Tr

-4
ig
ep

23

247
Question B.2

Select prices of
underlying
in equal intervals 46 47 48 49 50 51 52 53 54

t
Contract 1:

en
LT
Contract 2:
Contract 3:

m
Contract 4:
Premium 1:

op
Premium 2:
Premium 3:

k
Premium 4:

el

u
IG
Total pay-off:

o.
ev
Break-even points:
EP

.c
Maximum profit:

D
Maximum loss:

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

24

248
 Tr EP
ain IG
in O
ep g N
ig &

249
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
25
Answer B.2

Select prices of
underlying
in equal intervals 46 47 48 49 50 51 52 53 54

t
Contract 1: -Call 0 0 0 0 0 -1 -2 -3 -4

en
LT
Contract 2: -Put -4 -3 -2 -1 0 0 0 0 0
Contract 3:

m
Contract 4:
Premium 1: +2 2 2 2 2 2 2 2 2 2

op
Premium 2: +1 1 1 1 1 1 1 1 1 1
Premium 3:

k
Premium 4:

el

u
IG
Total pay-off: -1 0 1 2 3 2 1 0 -1

o.
ev
Break-even points: 47, 53
EP

.c
Maximum profit: 3

D
Unlimite

on
Maximum loss: d

&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

26

250
 Exercise 2
Short Straddle
= Vertical
4

t
en
LT
3

m
N

op
O

k
2

el

u
IG

o.
ev
Profit/Loss

EP
Short Straddle

.c
1

on
&
0

ig
46 47 48 49 50 51 52 53 54
g

ep
in
-1
in

@
a

on
Tr

-2
Price
ig
ep

27

251
Question B.3

Select prices of
underlying
in equal intervals 24 25 26 27 28 29 30 31 32

t
Contract 1:

en
LT
Contract 2:
Contract 3:

m
Contract 4:
Premium 1:

op
Premium 2:
Premium 3:

k
Premium 4:

el

u
IG
Total pay-off:

o.
ev
Break-even points:
EP

.c
Maximum profit:

D
Maximum loss:

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

28

252
 Tr EP
ain IG
in O
ep g N
ig &

253
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
29
Answer B.3

Select prices of underlying

in equal intervals 24 25 26 27 28 29 30 31 32
Contract 1: + 27 Call 0 0 0 0 1 2 3 4 5

t
Contract 2: - 30 Call 0 0 0 0 0 0

en
0 -1 -2

LT
Contract 3:
Contract 4:

m
Premium 1: -3 -3 -3 -3 -3 -3 -3 -3 -3 -3
Premium 2: +2 2 2 2 2 2 2 2 2 2

op
Premium 3:

O
Premium 4:

k
Total pay-off: -1 -1 -1 -1 0 1 2 2 2

el

u
IG

o.
ev
Break-even points: 28
Maximum profit: 2
EP

.c
Maximum loss: -1

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

30

254
 Exercise 3
Bull Call Spread
=Bull Put Spread
2.5

t
en
LT
2

m
N
1.5

op
O

k
el

u
1

IG

o.
ev
Profit/Loss

EP
Bull Spread

.c
0.5

on
0

&
24 25 26 27 28 29 30 31 32

ig
-0.5
g

ep
in
in

@
-1
a

on
Tr

-1.5
Price
ig
ep

31

255
Question B.4

Select prices of
underlying
in equal intervals 17 18 19 20 21 22 23 24 25

t
Contract 1:

en
LT
Contract 2:
Contract 3:

m
Contract 4:
Premium 1:

op
Premium 2:
Premium 3:

k
Premium 4:

el

u
IG
Total pay-off:

o.
ev
Break-even points:
EP

.c
Maximum profit:

D
Maximum loss:

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

32

256
 Tr EP
ain IG
in O
ep g N
ig &

257
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
33
Answer B.4

Select prices of underlying

in equal intervals 17 18 19 20 21 22 23 24 25
Contract 1: - 20 Call 0 0 0 0 -1 -2 -3 -4 -5

t
Contract 2: + 23 Call 0 0 0 0 0 0

en
0 1 2

LT
Contract 3:
Contract 4:

m
Premium 1: +2 2 2 2 2 2 2 2 2 2
Premium 2: -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5

op
Premium 3:

O
Premium 4:

k
Total pay-off: 1.5 1.5 1.5 1.5 0.5 -0.5 -1.5 -1.5 -1.5

el

u
IG

o.
ev
Break-even points: 21.5
Maximum profit: 1.5
EP

.c
Maximum loss: -1.5

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

34

258
 Exercise 4
Call Bear Spread
= Put Bear Spread
2

t
en
LT
1.5

m
N
1

op
O

k
el

u
0.5

IG

o.
ev
Profit/Loss

EP
Bear Spread

.c
0

D
17 18 19 20 21 22 23 24 25

on
-0.5

&

ig
-1
g

ep
in
in

@
-1.5
a

on
Tr

-2
Price
ig
ep

35

259
Question B.5

Select prices of
underlying
in equal intervals 68 69 70 71 72 73 74 75 76

t
en
Contract 1:

LT
Contract 2:
Contract 3:

m
Contract 4:

op
Premium 1:

O
Premium 2:

k
Premium 3:

el

u
IG
Premium 4:

o.
ev
Total pay-off:
EP

.c
Break-even points:

D
Maximum profit:

on
Maximum loss:

&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

36

260
 Tr EP
ain IG
in O
ep g N
ig &

261
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
37
Answer B.5

Select prices of underlying

in equal intervals 68 69 70 71 72 73 74 75 76

D
Contract 1: + 72 Put 4 3 2 1 0 0 0 0 0

t
en
Contract 2: + 74 Call 0 0 0 0 0 0 0 1 2

LT
Contract 3:

m
Contract 4:
Premium 1: -2 -2 -2 -2 -2 -2 -2 -2 -2 -2

op
Premium 2: -1 -1 -1 -1 -1 -1 -1 -1 -1 -1

O
Premium 3:

k
el
Premium 4:

u
IG
Total pay-off: 1 0 -1 -2 -3 -3 -3 -2 -1

o.
ev
Break-even points: 69, 77
EP

.c
Unlimite

D
Maximum profit: d

on
Maximum loss: -3

&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

38

262
 Exercise 5
Long Strangle
2

t
en
LT
1

m
N

op
O

k
0

el

u
68 69 70 71 72 73 74 75 76 77 78

IG

o.
ev
Profit/Loss

EP
Long Strangle

.c
-1

on
&
-2

ig
g

ep
in
-3
in

@
a

on
Tr

-4
Price
ig
ep

39

263
Question B.6

Select prices of
underlying
in equal intervals 73 74 75 76 77 78 79 80 81

t
Contract 1:

en
LT
Contract 2:
Contract 3:

m
Contract 4:
Premium 1:

op
Premium 2:
Premium 3:

k
Premium 4:

el

u
IG
Total pay-off:

o.
ev
Break-even points:
EP

.c
Maximum profit:

D
Maximum loss:

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

40

264
 Tr EP
ain IG
in O
ep g N
ig &

265
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
41
Answer B.6

Select prices of
underlying
in equal intervals 73 74 75 76 77 78 79 80 81

t
Contract 1: -76 Put -3 -2 -1 0 0 0 0 0 0

en
LT
Contract 2: -78 Call 0 0 0 0 0 0 -1 -2 -3
Contract 3:

m
Contract 4:
Premium 1: +1 1 1 1 1 1 1 1 1 1

op
Premium 2: +2 2 2 2 2 2 2 2 2 2
Premium 3:

k
Premium 4:

el

u
IG
Total pay-off: 0 1 2 3 3 3 2 1 0

o.
ev
Break-even points: 73, 81
EP

.c
Maximum profit: 3

D
Unlimite

on
Maximum loss: d

&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

42

266
 Exercise 6
Short Strangle
= Mombo Combo
3.5

t
en
LT
3

m
N

op
2.5

k
el

u
IG
2
Profit/Loss

o.
ev
Short Strangle
EP

.c
D
1.5

on
&
1

ig
g

ep
in
0.5
in

@
a

0
on
Tr

73 74 75 76 77 78 79 80 81
Price
ig
ep

43

267
Question B.7

Select prices of
underlying
in equal intervals 74 75 76 77 78 79 80 81 82

t
Contract 1:

en
LT
Contract 2:
Contract 3:

m
Contract 4:
Premium 1:

op
Premium 2:
Premium 3:

k
Premium 4:

el

u
IG
Total pay-off:

o.
ev
Break-even points:
EP

.c
Maximum profit:

D
Maximum loss:

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

44

268
 Tr EP
ain IG
in O
ep g N
ig &

269
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
45
Answer B.7

Select prices of
underlying
in equal intervals 74 75 76 77 78 79 80 81 82

t
Contract 1: +75 Call 0 0 1 2 3 4 5 6 7

en
LT
Contract 2: - 78 Call 0 0 0 0 0 -1 -2 -3 -4
Contract 3: -78 Call 0 0 0 0 0 -1 -2 -3 -4

m
Contract 4: +81 Call 0 0 0 0 0 0 0 0 1
Premium 1: -3 -3 -3 -3 -3 -3 -3 -3 -3 -3

op
Premium 2: +2 2 2 2 2 2 2 2 2 2
Premium 3: +2 2 2 2 2 2 2 2 2 2

k
Premium 4: -1.5 -1.5 -1.5 -1.5 -1.5 -1.5 -1.5 -1.5 -1.5 -1.5

el

u
IG
Total pay-off: -0.5 -0.5 0.5 1.5 2.5 1.5 0.5 -0.5 -0.5

o.
ev
Break-even points: 75.5, 80.5
EP

.c
Maximum profit: 2.5

D
Maximum loss: -0.5

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

46

270
 Exercise 7
Long Butterfly
3

t
en
LT

m
N
2

op
O

k
el

u
IG

o.
ev
Profit/Loss

EP
Long Butterfly

.c
1

on
&

ig
0
g

ep
in
74 75 76 77 78 79 80 81 82
in

@
a

on
Tr

-1
Price
ig
ep

47

271
Question B.8

Select prices of
underlying
in equal intervals 74 75 76 77 78 79 80 81 82

t
Contract 1:

en
LT
Contract 2:
Contract 3:

m
Contract 4:
Premium 1:

op
Premium 2:
Premium 3:

k
Premium 4:

el

u
IG
Total pay-off:

o.
ev
Break-even points:
EP

.c
Maximum profit:

D
Maximum loss:

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

48

272
 Tr EP
ain IG
in O
ep g N
ig &

273
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
49
Answer B.8

Select prices of
underlying
in equal intervals 74 75 76 77 78 79 80 81 82

t
Contract 1: -75 Call 0 0 -1 -2 -3 -4 -5 -6 -7

en
LT
Contract 2: +78 Call 0 0 0 0 0 1 2 3 4
Contract 3: +78 Call 0 0 0 0 0 1 2 3 4

m
Contract 4: -81 Call 0 0 0 0 0 0 0 0 -1
Premium 1: +3 3 3 3 3 3 3 3 3 3

op
Premium 2: -2 -2 -2 -2 -2 -2 -2 -2 -2 -2
Premium 3: -2 -2 -2 -2 -2 -2 -2 -2 -2 -2

k
Premium 4: +1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5

el

u
IG
Total pay-off: 0.5 0.5 -0.5 -1.5 -2.5 -1.5 -0.5 0.5 0.5

o.
ev
Break-even points: 75.5, 80.5
EP

.c
Maximum profit: 0.5

D
Maximum loss: -2.5

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

50

274
 Exercise 8
Short Butterfly
1

t
en
LT
0.5

m
N

op
0
74 75 76 77 78 79 80 81 82

k
el

u
-0.5

IG

o.
ev
Profit/Loss

EP

.c
-1 Short Butterfly

on
-1.5

&

ig
-2
g

ep
in
in

@
-2.5
a

on
Tr

-3
Price
ig
ep

51

275
C. INVESTMENT STRATEGIES EXERCISES

Draw the parity (pay-off) graphs for the following 4 positions.

What are the break-even points?
What is the maximum profit and loss?

t
en
[Calls are calls on the underlying future, puts are puts on underlying future]

LT

m
N
Position Strike Product Premium

op
O

k
1) Buy Future @ 360

el

u
Buy 360 Put @ 7.20

IG

o.
ev
2) Sell Future @ 380
EP
Write 380 Put @ 7.60

.c
D

on
3) Sell Future @ 380
Buy 380 Call @ 7.60

&

ig
4) Buy Future @ 360
Write 360 Call @
g7.20

ep
in
in

@
a

on
Tr

ig
ep

52

276
Question C.1

Select prices of
underlying

t
in equal intervals 348 351 354 357 360 363 366 369 372

en
Contract 1:

LT
Contract 2:

m
Premium 1:
Premium 2:

op
Total pay-off:

k
el

u
Break-even points:

IG
Maximum profit:

o.
ev
Maximum
EP
loss:

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

53

277
 Tr EP
ain IG
in O
ep g N
ig &

278
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
54
Answer C.1

Select prices of
underlying

t
in equal intervals 348 351 354 357 360 363 366 369 372

en
Contract 1: +Future -12 -9 -6 -3 0 3 6 9 12

LT
Contract 2: + 360 Put 12 9 6 3 0 0 0 0 0

m
Premium 1: 0 0 0 0 0 0 0 0 0 0
Premium 2: -7.20 -7.20 -7.20 -7.20 -7.20 -7.20 -7.20 -7.20 -7.20 -7.20

op
Total pay-off: -7.20 -7.20 -7.20 -7.20 -7.20 -4.20 -1.20 1.80 4.80

k
el

u
Break-even points: 367.20

IG
Maximum profit: Unlimited

o.
ev
Maximum loss: -7.20
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

55

279
 Exercise 1
Covered Call
15

t
en
LT
10

m
N

op
O

k
5

el

u
IG

o.
ev
Priofit/Loss

Long Future
EP

.c
D
0 Long Put (w

on
348 351 354 357 360 363 366 369 372 Option Prem

&
Long Call

ig
g
-5

ep
in
in

@
a

-10
on
Tr

ig
ep

56

280
Question C.2

Select prices of underlying

in equal intervals 368 371 374 377 380 383 386 389 392

t
Contract 1:

en
LT
Contract 2:
Premium 1:

m
Premium 2:

N
Total pay-off:

op
O

k
Break-even points:

el

u
IG
Maximum profit:

o.
ev
Maximum loss:
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

57

281
 Tr EP
ain IG
in O
ep g N
ig &

282
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
58
Answer C.2

Select prices of
underlying

t
in equal intervals 368 371 374 377 380 383 386 389 392

en
Contract 1: - Future 12 9 6 3 0 -3 -6 -9 -12

LT
Contract 2: - 380 Put -12 -9 -6 -3 0 0 0 0 0

m
Premium 1: 0 0 0 0 0 0 0 0 0 0
Premium 2: +7.60 7.60 7.60 7.60 7.60 7.60 7.60 7.60 7.60 7.60

op
Total pay-off: 7.60 7.60 7.60 7.60 7.60 4.60 1.60 -1.40 -4.40

k
el

u
Break-even points: 387.60

IG
Maximum profit: 7.60

o.
ev
Maximum loss: Unlimited
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

59

283
 Exercise 2
Covered Put
15

t
en
LT
10

m
N

op
O

k
5

el

u
IG

o.
Short Future

ev
Profit/Loss

Short Put (without Premium)

EP

.c
0
Option Premium

D
368 371 374 377 380 383 386 389 392
Short Call

on
&
-5

ig
g

ep
in
-10
in

@
a

on
Tr

-15
Price
ig
ep

60

284
Question C.3

Select prices of
underlying

t
in equal intervals 368 371 374 377 380 383 386 389 392

en
Contract 1:

LT
Contract 2:

m
Premium 1:
Premium 2:

op
Total pay-off:

k
el

u
Break-even points:

IG
Maximum profit:

o.
ev
Maximum
EP
loss:

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

61

285
 Tr EP
ain IG
in O
ep g N
ig &

286
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
62
Answer C.3

Select prices of
underlying

t
in equal intervals 368 371 374 377 380 383 386 389 392

en
Contract 1: - Future 12 9 6 3 0 -3 -6 -9 -12

LT
Contract 2: + 380 Call 0 0 0 0 0 3 6 9 12

m
Premium 1: 0 0 0 0 0 0 0 0 0 0
Premium 2: -7.60 -7.60 -7.60 -7.60 -7.60 -7.60 -7.60 -7.60 -7.60 -7.60

op
Total pay-off: 4.40 1.40 -1.60 -4.60 -7.60 -7.60 -7.60 -7.60 -7.60

k
el

u
Break-even points: 372.40

IG
Maximum profit: Unlimited

o.
ev
Maximum loss: -7.60
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

63

287
 Exercise 3

15

t
en
LT
10

m
N

op
O

k
5

el

u
IG

o.
Short Future

ev
Profit/Loss

Long Call
EP

.c
0
Option Premium

D
368 371 374 377 380 383 386 389 392
Long Put

on
&
-5

ig
g

ep
in
-10
in

@
a

on
Tr

-15
Price
ig
ep

64

288
Question C.4

Select prices of
underlying

t
in equal intervals 348 351 354 357 360 363 366 369 372

en
Contract 1:

LT
Contract 2:

m
Premium 1:
Premium 2:

op
Total pay-off:

k
el

u
Break-even points:

IG
Maximum profit:

o.
ev
Maximum
EP
loss:

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

65

289
 Tr EP
ain IG
in O
ep g N
ig &

290
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
66
Question C.4

Select prices of underlying

in equal intervals 348 351 354 357 360 363 366 369 372

t
Contract 1: +Future -12 -9 -6 -3 0 3 6 9 12

en
LT
Contract 2: - 360 Call 0 0 0 0 0 -3 -6 -9 -12
Premium 1: 0 0 0 0 0 0 0 0 0 0

m
Premium 2: +7.20 7.20 7.20 7.20 7.20 7.20 7.20 7.20 7.20 7.20

N
Total pay-off: -4.80 -1.80 1.20 4.20 7.20 7.20 7.20 7.20 7.20

op
O

k
Break-even points: 352.8

el

u
IG
Maximum profit: 7.2

o.
ev
Maximum loss: Unlimited
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

67

291
 Exercise 4
Covered Call
15

t
en
LT
10

m
N

op
O

k
5

el

u
IG

o.
Profit/Loss

Long Future

ev
Short Call
EP
0

.c
Option Premium

D
348 351 354 357 360 363 366 369 372
Short Put

on
&
-5

ig
g

ep
in
-10
in

@
a

on
Tr

-15
Price
ig
ep

68

292
D. SYNTHETICS EXERCISES

Draw the parity (pay-off) graphs for the following 2 positions.

What are the break-even points?
What is the maximum profit and loss?

t
en
LT

m
N

op
Position Strike Product Premium

k
el

u
1) Buy 1.44 Call @ 0.05

IG
Write 1.44 Put @ 0.05

o.
ev
EP
2) Write 1.25 Call @ 0.035

.c
D
Buy 1.25 Put @ 0.035

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

69

293
Question D.1

Select prices of underlying

in equal intervals 1.24 1.29 1.34 1.39 1.44 1.49 1.54 1.59 1.64

t
Contract 1: +1.44 Call

en
LT
Contract 2: - 1.44 Put
Premium 1: -0.05

m
Premium 2: 0.05

N
Total pay-off:

op
O

k
Break-even points:

el

u
IG
Maximum profit:

o.
ev
Maximum loss:
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

70

294
 Tr EP
ain IG
in O
ep g N
ig &

295
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
71
Answer D.1

Select prices of
underlying

t
in equal intervals 1.24 1.29 1.34 1.39 1.44 1.49 1.54 1.59 1.64

en
Contract 1: +1.44 Call 0.00 0.00 0.00 0.00 0.00 0.05 0.10 0.15 0.20

LT
Contract 2: - 1.44 Put -0.20 -0.15 -0.10 -0.05 0.00 0.00 0.00 0.00 0.00

m
Premium 1: -0.05 -0.05 -0.05 -0.05 -0.05 -0.05 -0.05 -0.05 -0.05 -0.05
Premium 2: 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05

op
Total pay-off: -0.20 -0.15 -0.10 -0.05 0.00 0.05 0.10 0.15 0.20

k
el

u
Break-even points: 1.44

IG
Maximum profit: Unlimited

o.
ev
Maximum loss: Unlimited
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

72

296
 Exercise 1
Create a Synthetic long Future/Forward
0.25

t
en
LT
0.20

m
0.15

op
0.10

k
el

u
IG
0.05 Buy Call

o.
ev
Profit/Loss

Sell Put
EP
0.00 Call Premium

.c
D
1.24 1.29 1.34 1.39 1.44 1.49 1.54 1.59 1.64 Put Premium

on
-0.05 Synthetic long Future/Forward

&

ig
-0.10 g

ep
in
-0.15
in

-0.20

@
a

on
Tr

-0.25
Price
ig
ep

73

297
Question D.2

Select prices of underlying

in equal intervals 1.110 1.145 1.180 1.215 1.250 1.285 1.320 1.355 1.390

t
Contract 1:

en
LT
Contract 2:
Premium 1:

m
Premium 2:

N
Total pay-off:

op
O

k
Break-even points:

el

u
IG
Maximum profit:

o.
ev
Maximum loss:
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

74

298
 Tr EP
ain IG
in O
ep g N
ig &

299
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
u k
75
Answer D.2

Select prices of
underlying

t
in equal intervals 1.110 1.145 1.180 1.215 1.250 1.285 1.320 1.355 1.390

en
Contract 1: - 1.25 Call 0.000 0.000 0.000 0.000 0.000 -0.035 -0.070 -0.105 -0.140

LT
Contract 2: +1.25 Put 0.140 0.105 0.070 0.035 0.000 0.000 0.000 0.000 0.000

m
Premium 1: +0.035 0.035 0.035 0.035 0.035 0.035 0.035 0.035 0.035 0.035
Premium 2: -0.035 -0.035 -0.035 -0.035 -0.035 -0.035 -0.035 -0.035 -0.035 -0.035

op
Total pay-off: 0.140 0.105 0.070 0.035 0.000 -0.035 -0.070 -0.105 -0.140

k
el

u
Break-even points: 1.25

IG
Maximum profit: Unlimited

o.
ev
Maximum loss: Unlimited
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

76

300
 Exercise 2
Create a Synthetic short Future/Forward
0.200

t
en
LT
0.150

m
N
0.100

op
O

k
el

u
0.050

IG

o.
ev
Short Call
Profit/Loss

Short Put (without Premium)

EP

.c
0.000
Option Premium

D
1.110 1.145 1.180 1.215 1.250 1.285 1.320 1.355 1.390

on
Synthetic Short Future/Forward
-0.050

&

ig
-0.100
g

ep
in
in

@
-0.150
a

on
Tr

-0.200
Price
ig
ep

77

301
E. PUT CALL PARITY

EXERCISE ON PUT-CALL PARITY

D
Options on the CME September Eurodollar Futures are quoted as follows:

t
en
LT
CALLS PUTS

m
Strike Premium Strike Premium

op
93.00 1.32 93.00 0.01

k
93.25 1.07 93.25 0.01

el

u
93.50 0.83 93.50 0.02

IG
93.75 0.59 93.75 0.03

o.
ev
94.00 0.39 94.00 0.07
EP
94.25 0.22 94.25 0.15

.c
D
94.50 0.09 94.50 0.27

on
94.75 0.03 94.75 0.45

&
From the above information approximate the price of the underlying futures contract.

ig
g

ep
in
in

@
a

on
Tr

ig
ep

78

302
SOLUTION TO PUT-CALL PARITY

Put-Call Parity:
F = X + Cx - Px

t
en
Where:

LT
F = Future (or any other underlying, but watch the cost of carry)
X = Strike price of option

m
Cx = Call premium at strike X
Px = Put premium at strike X

op
O

k
For X = 93.00 F = 93.00 + 1.32 - 0.01 = 94.31

el
For X = 94.75 F = 94.75 + 0.03 - 0.45 = 94.33

u
IG

o.
ev
The above approximates the Forward value.
EP

.c
For best results will be found taken the at the money strike prices. These should be the most liquid premiums and give the most

D
precise approximation. The ATM options are those where the difference between Put and Call premium is smallest. In this case:

on
&
For X = 94.25 F = 94.25 + 0.22 - 0.15 = 94.32

ig
g

ep
in
in

@
a

on
Tr

ig
ep

79

303
F. DELTA HEDGING

D
Firstly, delta is the change in the price of the option given a change in the price of the underlying. So mathematically it is a first

t
en
derivative that can be calculated as a number between 0 and 1 (or 0% to 100%).

LT
I prefer to understand it as the probability of the option to be in the money. Therefore it is reasonable, for any option seller (let’s say a

m
short call option on the Gold future) to hold that amount of the underlying.

op
Example:

k
If the delta of a short call option on the Gold future is 30, then you want 30% the underlying Gold future for delivery. This way you

el

u
have ‘hedged’ the risk of your current option position.

IG

o.
ev
As the delta change because the option is going more out of the money (price drops), then the delta will be lower and you require less
EP
of the underlying. If the value of the option is moving more towards into the money, the delta will increase and you require a larger

.c
D
amount of the underlying again.

on
So you end up hedging your option position by buying and selling the underlying position.

&

ig
This is good but not perfect, because
g
- You are hedging a non-liner instrument (option) with a liner instrument (future)

ep
in
- Because over time there is an asymmetric time decay between the option and the future
- And more
in

@
Therefore be aware that this must be taken into consideration the closer you get to expiry of the option.
a

on
Tr

ig
ep

80

304
EXERCISE ON DELTA HEDGING (I)

You have been trading options on futures and now you have the following positions on your book. What must you do to be delta-
neutral?

Position Amount Product Delta

t
en
Long 10 95 Call 50%

LT
Short 5 96 Call 45%
Short 5 97 Call 42%

m
Short 15 95 Put 50%

op
O

k
el

u
IG

o.
ev
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

81

305
SOLUTION ON DELTA HEDGING (I)

Position Amount Product Delta Futures

contract
needed
Long 10 95 Call 50% -5.00

t
en
Short 5 96 Call 45% +2.25

LT
Short 5 97 Call 42% +2.10
Short 15 95 Put 50% -7.50

m
Total -8.15

op
To be delta-neutral you must sell 8 futures contracts.

k
el
NB:

u
IG
The Delta of a future is 1 (or 100%).

o.
ev
EP

.c
D

on
&

ig
g

ep
in
in

@
a

on
Tr

ig
ep

82

306
EXERCISE ON DELTA HEDGING (II)

On the 9 Jan you sell 50 contracts of the Short Sterling at-the-money Call Options for 6 and decided to run a delta-neutral book. You
delta-hedge daily with the 3-month Sterling Futures. On the 13 Jan you buy back the Call Options at 3.5 and close out your futures
position.

t
en
LT
Questions:

m
1) Are you taking in the premium or paying it out?

op
2) Given the deltas below, how many Futures must you buy/sell?

k
el
3) What is the profit or loss on the delta hedge?

u
IG

o.
ev
4) What is your overall profit or loss?
EP

.c
D

on
&
Delta: The amount you need to be hedged.

ig
g

ep
in
Date Delta Change in Underlying Hedge Trading Cumulative
Delta Price Transaction Position Trading Position
in

@
9 Jan 0.5 93.1
10 Jan 0.7 93.5
a

on
11 Jan 0.6 93.3
Tr

12 Jan 0.5 93.2

13 Jan 93.1
ig
ep

83

307
SOLUTION - DELTA HEDGING (II)

1) You sold the Options so you receive (take in) the cash of 6.

2 & 3)

t
en
LT
Date Delta Change in Underlying Hedge Trading Cumulative
Delta Price Transaction Position Trading Position

m
9 Jan 0.5 +0.5 93.1 +25 (Buy 0.5 x 50) -2327.5 -2327.5

N
10 Jan 0.7 +0.2 93.5 +10 (Buy 0.2 x 50) -935 -3262.5

op
11 Jan 0.6 -0.1 93.3 -5 (Sell 0.1 x 50) +466.5 -2796.0

k
12 Jan 0.5 -0.1 93.2 -5 (Sell 0.1 x 50) +466 -2330

el

u
IG
13 Jan -0.5 93.1 -25 (Sell 0.5 x 50) +2327.5 -2.5

o.
ev
Loss of 2.5
EP

.c
D
4)

on
&
Loss on Delta trading: -2.5

ig
Premium Received on 9 Jan: +6.0 g
Premium Paid on 13 Jan: -3.5

ep
Total Profit/Loss: 0
in
in

@
a

on
Tr

ig
ep

84

308
G. CAPS, FLOORS AND COLLARS

A cap is a series of European style Put options (caplets) with the same strike on interest rates.

A floor is a series of European style Call options (florlets) with the same strike on interest rates.

t
en
A collar is a series of Put and Call options on interest rates.

LT

m
N
Borrower’s perspective:

op
O

k
Buy Cap (fixing a maximum borrowing rate) = Buy Put Option

el

u
Sell Floor (fixing a minimum borrowing rate) = Sell Call Option

IG
= Collar (long)

o.
ev
EP

.c
D

on
Investor’s perspective:

&
Buy Floor (fixing a minimum lending rate) = Buy Call Option

ig
Sell Cap (fixing a maximum lending rate) = Sell Put Option
g
= Collar (short)

ep
in
in

@
Zero-cost Collar:
Strike prices of cap and floor are set so that the total premium is zero.
a

on
Tr

A cap and a floor at the same strike lock in a fixed rate and are like a swap (Put-Call Parity)!
ig
ep

85

309
H. EXOTIC OPTIONS

Name Description Features Price Reasons for use Graph Market

Equity Basket Select Portfolio Buy only market Cheaper than all Spread Trades E
risk equity options

t
en
Bermuda Exercise on specific Buy only exercise Cheaper than US I, C

LT
dates/periods only dates you want style
Asian (Average Price=Average Cheaper, less Buy at average price C, I, E

m
Rate) dependent on vol Cross-currency

N
transactions

op
Alternative Currency Select the best Price=Best Cheaper than 2 Select best performance C

k
performing currency If indifferent between

el

u
payments in either

IG
currency, collect premium

o.
ev
Lookback Select Strike=Best Expensive Select best performance E, I, C
EP

.c
Contingent Pay only if ITM Expensive Pay for protection when

D
Premium you need it

on
Instalment Pay premium in 1. Pay over time Expensive Pay for as long as you E, I
instalments 2. Terminate option need protection

&
Deferred Strike Lock’s in low level of 1. Buy low vol Low, when vol low Buy cheap vol E, I, C

ig
vol Timing (prior event)
g

ep
Strike set later
in
Knock Out Down & Out Call Explode (Early Cheaper E, C
Exercise)
in

Knock In Down & In Call Activates

@ Cheaper E, C
a

Compound Option on Option Cheaper E, I, C

on
Tr

ig
ep

86

310
 Tr EP
ai IG
ni O
ep ng N
ig &

311
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

312
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

313
o LT
n@ D D
ev
ep e lo
ig pm
on en
.c t
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

314
o LT
n@ D D
ev
ep e lo
ig pm
on en
.c t
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

315
o LT
n@ D D
ev
ep e lo
ig pm
on en
.c t
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

316
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ain IG
in O
ep g N
ig &

317
LT
on D D
@ ev
el
ep op
igo m
n. en
co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
i &

318
go LT
n@ D D
ev
ep e lo
ig p m
o n. en
co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

319
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

320
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
a in I G
in O
ep g N
ig &

321
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
a in IG
in O
ep g N
ig &

322
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o .u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

323
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
a in IG
in O
ep g N
ig &

324
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o .u
k
 Tr EP
ai IG
ni O
ep n g N
ig & L

325
on D TD
@ ev
el
ep
ig opm
on
.c e nt
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

326
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

327
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

328
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

329
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
ai
ni I G
ng O
ep N
ig &

330
LT
on D D
@ ev
el
ep
ig o pm
on en
.c t
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

331
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

332
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

333
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

334
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

335
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
a in IG
in O
ep g N
ig &

336
LT
on D D
@ ev
el
ep op
ig m
on en
. co t
. uk
 Tr EP
ai IG
ni O
ep ng N
ig &

337
LT
on D D
@ ev
el
ep
ig o pm
o n. en
co t
. uk
 Tr EP
ai IG
ni O
ep ng N
ig &

338
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

339
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

340
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

341
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

342
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
ain IG
in O
ep g N
ig &

343
LT
on D D
@ ev
el
ep
ig opm
on
.c e nt
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

344
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

345
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

346
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

347
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

348
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep n g N
ig &

349
LT
on D D
@ ev
el
ep op
igo m
n. en
co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

350
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

351
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ain IG
in O
ep g N
ig &

352
LT
on D D
@ ev
el
ep op
igo m
n. en
co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

353
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

354
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

355
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ain IG
in O
ep g N
ig &

356
LT
on D D
@ ev
el
ep op
igo m
n. en
co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

357
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
a in I G
in O
ep g N
ig &

358
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

359
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

360
LT
on D D
@ ev
el
ep op
ig m
on en
.c t
o.
uk
 Tr EP
ai IG
ni O
ep ng N
ig &

361
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
 Tr EP
ai IG
ni O
ep ng N
ig &

362
o LT
n@ D D
ev
el
ep
ig o pm
on en
. co t
.u
k
Financial List of Literature
This list is by no means complete. Visit www.epigon.co.uk for more listings.

Title Author/Editor Publisher City Date

A Financial Charles Oxford Oxford 1994

History of Kindleberger University Press
Western Europe
A Model of Mohamed Saeed Synergy Books Kuala 2000
Interest-free Shingeri International Lumpur
Banking
Active Asset Frank Fabozzi et al Irwin London 1996

t
en
Allocation (Editors)
LT
An Introduction Salih N Neftci Academic Press San Diego 1996
to the

m
Mathematics of
Financial
N

Derivatives
op
O

uk
An Introduction Stephen Valdez Macmillan New York 1997
el
to Global
IG

Financial

.
ev

co
Markets
EP

An Introduction Petros Geroulanos Securities London 1998

to Swaps Institute
D

An Introduction Moorad Choudhry Securities

n. London 1999
to Value at Risk Institute
go
&

Animal Spirits G. Akerlof et al Princeton Scottsdale 2010

Asia-Pacific Jonathan A. Wiley Singapore 2002
g

fixed income Batten

ep
n

markets
ni

Asset- & Heinz Neue Zürcher Zürich 1995

@

Liability Zimmermann et al Zeitung

ai

Management
on

Behavioral Ewin Burton et al Wiley Finance Chichester 2013

Tr

Finance
Behavioral Joachim Goldberg FinanzBuch Munich 1999
ig

Finance (dt) et al Verlag

Behavioral Joachim Goldberg Wiley Finance Chichester 1999
ep

Finance (engl) et al
Behavioral Lucy Ackert et al South-Western Mason 2010
Finance: Cengage
Psychology, Learning
Decision-
Making and
Markets
Behavioral Michael M. Wiley Finance Chichester 2012
Finance and Pompian
Investor Types

363
Behavioral Michael M. Wiley Finance Chichester 2012
Finance and Pompian
Wealth
Management
Behavioural James Montier Wiley Finance Chichester 2002
Finance
Behavioural James Montier Wiley Chichester 2007
Investing
Bollinger on John Bollinger McGraw-Hill New York 2002
Bollinger Bands
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Useful websites in alphabetical order:

http://en.wikipedia.org/
http://finance.yahoo.com/
http://money.msn.com/
www.bis.org
www.bloomberg.com
www.cmegroup.com
www.ecb.int
www.epigon.co.uk
www.erstegroup.com
www.eurexchange.com
www.eurexclearing.com

t
www.euronext.com

en
LT
www.fool.com
www.ft.com

m
www.fxstreet.com
www.ifrpub.com
N

www.isda.org
op
O

www.marketwatch.com

uk
www.nzz.ch
el
IG

www.reuters.com

.
ev

www.theice.com

co
www.tradingview.com
EP

www.ubs.com
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www.vixcentral.com
n.
www.wsj.com
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&

www.youtube.com
g

i
ep
n
ni

@
ai

on
Tr

ig
ep

373