Last updated: 7/2009

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Interest Rate Analysis Tutorial Package
Forwards and Futures Analysis Tutorial Package

Options Analysis Tutorial Package

Overview
Before you embark on the road of derivative analysis, a solid understanding of interest rates is essential. This package starts by looking at the money markets and the short term instruments traded within them. It then moves on to take a closer look at the interest rates that support them, namely, LIBOR, zero and forward rates. Having an understanding of the differences between these rates, this package then moves on to their derivation and presentation. It then shows how these rates are used to price and value conventional bonds. Although bonds are not derivatives, they illustrate the importance of interest rates in the valuation of financial instruments. There is also a tutorial that covers conventional bond price sensitivity (to interest rates) which provides an introduction to the kind of quantitative analysis used in the pricing of derivatives.
Package Tutorial Titles
Introduction

Money Market Interbank
Looks at the role of a central bank, LIBOR and LIBID rate types and an introduction into forward rates.
Money Market Instruments
Illustrates valuing and pricing together with descriptions of MMD's, CD's, Treasury Bills, Commercial Bills and Commercial Paper.

Spot and Forward Rates

Short Term LIBOR Spot and Forward Rates
Working from raw interest rate data, this tutorial guides you through the process of constructing a term structure for spot rates at the short end using the 'bootstrap' method together with the term structure for the forward rates derived from them.
Mid Term LIBOR Spot and Forward Rates
Working from raw interest rate data, this tutorial guides you through the process of constructing a term structure for spot rates from the short end using the 'bootstrap' method together with the term structure for the forward rates derived from them.
Treasury Spot and Forward Rates
Working from raw gilt strip (for simplicity) data, this tutorial guides you through the process of constructing a term structure for spot rates at the long end using the 'bootstrap' method together with the term structure for the forward rates derived from them.

Conventional Bond Analysis

Pricing Conventional Bonds
Working from raw government bond data, this tutorial guides you through the process of pricing a conventional bond. From the derived spot rates you are shown 3 pricing methods including the one favoured by bond markets illustrating clean and dirty bond prices with a full explanation of accruals.
Bond Yields
This tutorial starts with an illustration and description of running and simple yield to maturity followed by a full explanation and illustration of yield to maturity using the Newton-Raphson method.
Bond Price Sensitivity
Working with raw government bond data this tutorial shows how Taylor's series can be used to estimate how a bond price would be affected from a small change in yield. This is then carried forward to fully explain and illustrate modified duration followed by a full explanation and illustration of the effects of convexity on duration.

Bonus Titles

The Value of Money
Looks at future and present values using simple interest and compound interest (including continuously compounded). Day count conventions are also fully explained and illustrated.
Introduction to Statistics
Looks at graphically presented and descriptive statistics - 1st, 2nd, 3rd and 4th moments.
Included is a spread sheet (.xls extension) which takes you through the process of producing all the graphical and descriptive statistics covered in the tutorial working from raw share price data. The workbook is read only but all cell formulae can be viewed.
Covariance and Correlation
Taking the 'Introduction to Statistics' further, this tutorial explains covariance, correlation, scatter charts and matrices with an introduction into portfolio risk.
Included is a spread sheet (.xls extension) which takes you through the process of producing covariances, correlations, scatter chart and matrices from raw share price data. It also uses this data to power an included simple portfolio risk calculator which lets you see the affect on the portfolio risk with weight variation of a four share portfolio. The workbook is read only but all cell formulae can be viewed (and you are able to change the weights of the constituents in the portfolio risk calculator).
Probability Distributions
Fully explains and illustrates discrete (binomial distributions) and continuous probability distributions.
Introduction to Calculus
Fully explains and illustrates the first and second derivative with a section covering differentiation rules that are likely to be encountered within finance calculations.

The bonus titles are aimed at helping you with the pricing tutorials containing quantitative methods in finance.

Financial Calculators
There are a number of calculators included in the package aimed at giving a clearer picture through practical application of the theory.

Calculator 1 : calculates zero interest rates derived from inputted interest rates using the 'bootstrap' method. It then derives the forward rates from the derived zero rate. The term structures can then be outputted, an example of which is shown above.

Calculator 2 : calculates the 'fair value' of a zero coupon bond.

Calculator 3 : calculates the 'fair value' of a conventional bond with up to 60 cash flows. It uses the same method of calculating the clean price as the bond markets with the added option of calculating the dirty price. The cash flow profile can then be outputted, an example of which is shown above.

Calculator 4 : calculates the duration (including modified) of a bond with up to 60 cash flows. The calculator can then use the outputted duration value to estimate the expected price change of the bond against any expected bond yield change. The duration profile can then be outputted, an example of which is shown above.

Calculator 5 : calculates the future and present value of money based on inputted compounding or discounting rates.

Summary
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