Low Latency Interest Rate Markets - Theory, Pricing & Practice (Presentation Slides)

Abstract

The primary aim of this presentation is to introduce my new book "Low Latency Interest Rate Markets" and expose the reader to the theory and practice of interest rate markets. Interest rate markets exist to support government, corporate and project finance, however the financing of large-scale projects bears many risks. We explain these risks and introduce the wide variety of swap instruments available in the financial marketplace created to manage them. Secondary to this, interest rate markets are undergoing notable change and reform and we aim to familiarise the reader with prevailing interest rate market conditions, and to highlight the impact of these changes on existing market protocols.

To complement the theory, we provide an extensive downloadable library of supporting Excel workbooks to allow readers to experiment, deep-dive and get their hands dirty with pricing, risk and yield curve modelling. Throughout the presentation and book, we present trading screens to give the reader an awareness of interest rate markets, to show how interest rate products are quoted, traded and risk managed. Whilst presenting products and models we endeavour to reflect upon the impact of ongoing market changes being brought about by LIBOR benchmark reform.

We aim to give a complete review of linear interest rate products, looking at both the products themselves and the pricing. The products covered include interest rate swaps, overnight indexed swaps, risk-free rate swaps, FRAs, interest rate futures, tenor basis and cross currency basis swaps, asset swaps as well as credit default swaps to provide a holistic view of the product landscape. Yield curve modelling is a fundamental topic that is covered in-depth, as it is a pre-requisite to being able to price interest rate products. To keep the reader up to date with current industry trends, advanced topics such as Curve Jacobians and Automatic Adjoint Differentiation (AAD) are also covered and used to demonstrate how to perform ultra-fast curve calibration and highly precise real-time risk calculations.

We assume minimal prior knowledge of mathematics and finance as we want to make learning and understanding interest rate markets as simple as possible.

Keywords: Electronic Markets, Trading, Quant Finance, High Frequency Trading, Market Making, Interest Rates, Credit Derivatives, Asset Swaps, Pricing, Risk, Yield Curves, Advanced Risk, Real-Time, Peformance, Efficiency, Accuracy, Low Latency, Curve Jacobians, Automatic Adjoint Differentiation, AAD

JEL Classification: A22, A23, A31, C30, C61, C63, C65, C67, E30, E37, E40, E41, E42, E43, E44, E47, F37, F38, F47, G12