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1 INTEREST RATE SWAP 1.1 The swap mechanism 1.2 Coupon swap Buyer/seller convention. Quotation conventions. Other types of interest rate swaps. 1.3 Speculative strategies using interest rate swaps Risk taking strategies. Risk transforming strategies. Transformation of a hedged position to a speculative position. 1.4 Hedging strategies using interest rate swaps Hedging with coupon swaps. Hedging with basis swaps. 1.5 Warehousing of coupon swaps Warehousing with bonds. Warehousing with futures. 1.6 Arbitrage strategies using interest rate swaps Liability arbitrage swap. Asset arbitrage swap. 1.7 New-issues arbitrage Description. Example. Intermediating role of swap dealer. Credit risk considerations. 1.8 Valuation of coupon swaps Formulas. Bootstrapping of swap rates. 2 FORWARD RATE AGREEMENT 2.1 Description 2.2 Applications of FRA Speculative trades. Hedging trades. 2.3 FRA strip Description. Rules of construction. 2.4 Price links with coupon swaps 2.5 Price links with futures contracts Similarities and differences. Futures-linked FRA contracts. Futures-linked FRA strips. Linear interpolation ‘same start, different length’. Linear interpolation ‘same length, different start’. 3 CURRENCY SWAP 3.1 Exchange rate conventions 3.2 Covered interest rate parity Cash-and-carry transaction. Forward discount and premium. Uncovered interest rate parity. Non-deliverable forward. 3.3 Related currency instruments Outright forward. Foreign exchange swap. Currency swap. Precursors of currency swaps. 3.4 Risk management with currency swaps Borrowing in foreign currency. Investing in foreign currency. 3.5 New-issues arbitrage Example. 3.6 Warehousing of currency swaps 3.7 Valuation of currency swaps 3.8 Two case studies in currency swaps Issuance of eurobonds in a high-yield currency. External borrowing avoiding appreciation pressures. 4 EQUITY SWAP 4.1 Description 4.2 Synthetic equity investment Equity swap with fixed notional principal amount. Equity swap with variable notional principal amount. Cross-currency equity swap. 5 SWAPTION 5.1 Description 5.2 Application 6 CREDIT DERIVATIVES 6.1 Introduction 6.2 Credit default swap Description. Applications. Probability model of CDS pricing. No arbitrage model of CDS pricing. 6.3 Total rate of return swap Description. Applications. Leverage. 6.4 Credit options Credit level options. Credit spread options. Links between credit level and credit spread options. 6.5 Credit forwards 6.6 Credit linked notes 6.7 Collateralized debt obligations Subordination structure. Risk-return properties of CDO tranches.