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Course Calendar Course Calendar

LFS Capital Markets Fundamentals

Day One

Capital Markets Overview

  • Market Overview
    • The key participants
      • Key participants – investors (lenders) and issuers (borrowers)
      • Hedge funds – what makes a hedge fund? How do they make money?
    • Market drivers – requirements for funding, sources of capital
    • Primary vs. secondary markets
    • Essential macro drivers
      • What drives market prices
      • What drives relative outperformance between asset classes and instruments
    • Measuring investment performance
      • ‘Alpha’ vs. ‘beta’, absolute performance vs. benchmarking
      • In defence of tracker funds
      • Key metrics of performance – total return, RoE/RoA, return per unit risk (Sharpe ratio)
      • Equity indices – total return vs. capital appreciation, price-weighted vs. market cap-weighted
  • The key markets
    • Principal asset classes
    • Physical (cash) markets vs. delta-1 derivatives
    • Non-linear (bespoke) derivatives

Workshop: Understanding price drivers and how the market responds to financial and geo-political news across all main asset classes – Analysis of empirical results from history

  • The role of the investment bank
    • Who are involved, from origination to trading
    • How banks make money
      • Cross-selling opportunities
    • Understanding clients’ needs on both buy-side and sell-side
    • Intermediating and warehousing risk, balance-sheet and capital implications
  • Market regulation and supervision
    • Review of the Global Financial Crisis
      • Understanding the causes
      • The lessons that the market learnt
    • The role of the Central Banks and domestic regulators
    • Supranational regulation (Basel), solvency and capital
    • Financial legislation post-crisis (Dodd-Frank, EMIR)
      • The Volcker rule and the impact on banks’ business models
    • MiFiD and its consequences
    • The role of compliance departments within banks
      • Review of recent scandals (LIBOR/FX manipulation, swaps miss-selling, et al)
  • The capital structure decision
    • Debt vs. equity financing – borrower perspective and investor perspective
    • Leverage vs. solvency – is there an optimal debt/equity ratio?
    • Why banks are different from corporates

Workshop: Calculation of shareholder RoE for a corporate under three capital structure scenarios

Day Two

Equity Markets

Equity Cash Markets

  • Primary markets
    • The decision to go public – pros and cons
    • Structuring an IPO
      • From inception, through roadshows, to launch and after-market support
      • The roles played by different divisions within the lead-manager
      • Why league tables (seem to) matter
    • Rights issues and other secondary market offerings
      • Computing the theoretical ex-rights price (TERP)
    • The ‘greenshoe’
  • Equity secondary market trading
    • Sources of liquidity
      • Public inventories and dark pools
    • Equity market-making
      • Mechanics of short-selling
    • The role of research
      • Technical vs. fundamental research
      • Do historical price patterns matter?
  • Trade execution and trading platforms
    • Electronic trading platforms and HFT
    • ‘Direct market access’ and execution efficiency

Workshop: Secondary market capital raising – Analysis of a recent bank rights issuer and calculation of the TERP

Convertible Bonds

  • Convertible bond structure and mechanics
    • CB variations (exchangeables, mandatories)
    • Key jargon and ratios – parity, conversion ratio, bond floor, conversion premium
    • Borrowers’ and investors’ perspective
  • Contingent convertibles (CoCos)
    • Structure and mechanics
    • Motivation for CoCo issuance

Equity Delta-1

  • Equity forwards, single-stock and indices
    • Where is the fair forward?
    • The stock borrow
  • Equity index futures
    • Mechanics and settlement, margining
    • Futures and leverage
    • Fair value and basis trading
    • Hedging with futures
      • Computing the hedge ratio
      • Tracking errors, adjusting for Beta
  • Equity swaps
    • Mechanics and applications

Workshop: Using futures to hedge – Cutting the exposure on a large equity position using index futures

Day Three

Fixed Income Markets

The Money Markets

  • Understanding interbank rates
    • What are interbank rates? What is LIBOR and why has it been problematic?
    • Overnight indices
  • Central Banks and interest-rate policy
  • Other money-market instruments
    • Bank deposits and CDs
    • T-bills
    • Commercial Paper

Debt Markets

  • DCM and bond issuance
    • Considerations for first time issuers
    • Bonds vs. loans
    • The issuance process – auctions vs. underwritten deals
  • Bond types, structures and market conventions
    • Types of bonds, MTNs
    • Fixed rate bonds vs. FRNs
  • Understanding the yield curve
    • The various yield curves that we look at
    • Drivers of shape and level
    • Macroeconomic drivers and the impact of Central Bank activity

Workshop: Comparison of different money-market instruments and the returns offered

Bond Pricing and Risk

  • Coupon, price, yield
    • Clean vs. dirty prices, accrued interest calculations
    • Price/yield relationship and PV01
  • The various duration measures
    • Duration, modified duration and Macaulay duration
    • From (mod) duration to DV01
  • Alternative bond structures
    • Callable bonds
    • Structured notes

Interest rate swaps

  • Mechanics of an IRS
  • Intuitive swaps pricing and risk
  • Capital market applications
    • New issue swaps
    • Asset swaps
    • Hedging interest rate risk

Workshop: Swapping a new issue

Day Four

Credit Markets and FX

Credit Markets

  • Understanding seniority and creditor claims
    • The bankruptcy process and order of priority
    • Historic default and recovery rates
  • Pricing credit risk
    • Spread, recovery rate and default probability
    • CDS vs. cash-market spreads
      • The different spreads and how they are related
    • The role of the ratings agencies
      • Why ratings and spreads can diverge
  • Corporate bond issuance
    • Investment grade and high-yield debt markets

Securitization and ABS

  • What is securitization?
    • Who are the market participants?
    • Motivation for securitization
    • Credit enhancement of the collateral pool
  • Asset-backed markets
    • Process of asset securitization
    • Nature and type of assets securitized
    • Long-term vehicles vs. short-term commercial paper facilities
  • Mortgage-backed securities
  • Covered bonds
  • Tranched Structures
    • The waterfall process
    • CDOs, CLOs, CBOs, CMOs – the whole family
    • Briefly on the 2008 crisis

Workshop: The 2008 Crisis

Foreign Exchange

  • Spot market conventions
  • Computing cross-rates
  • Forward FX quotation conventions
    • Computing the fair forward rate
  • Hedging commercial exposures
  • FX Swaps
    • Swaps vs. outright forwards
    • Customer applications of FX swaps
      • Using FX swaps as a cash-management tool
      • How customers use FX swaps to manage market and liquidity risk
      • Using FX swaps to optimize funding and investment opportunities


  • Option Definitions
  • Uses of Options
  • Directional Views
  • Volatility, Time Value and Basic Option Pricing

Workshop: FX hedging strategies

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