Structuring: an approach to the dealing room




  Updated October 21, 2009 - © All rights reserved




Find below Notation, Method of Work and answers to frequently asked questions.

Do Flash Questions before contacting me at :

The subjects are here.

Working Method-Notation - Mail - Exchange  Questions - Simplification - Questions Flash - Marketing - Calculation of Performance - Forward 
 Secondary Market  Rates Curve - Zero Coupon - Continuous Rate - Volatility Surface - Interpolation - Initial Value - Calculate the up-front margin 
 Pricer Excel - Power Point Presentation  Oral presentation




Working Method

It is recalled that this study requires a very good understanding of the course, I am available for that during the classes and by mail but you are responsible to keep the timing and method of monitoring the work below. By experiences: it takes some time ...


1.     Read all documents.

2.     Two documents have to be send the day before the Oral Presentation (see Notation): Pricer Excel and Power Point Presentation (Office 2003, not 2007, no xlsX, no pptX,  no.Rar files, maximum size per file 1Mo).

3.     The Excel file Pricer contains the market data necessary for calculations (rates curve and volatility surface).It should be completed.

4.     Make sure you have read the FAQ entirely.

5.     Questions Flash is a plus to test your knowledge.

6.     The Marketing part can be started after having just understood the product (so after the first course).

7.     The graphical representation of the P&L profile of the product must be validated during the second course.

8.     Before the last course make sure you know how to answer each question.

9.     Ask a question in the course is beneficial to all, save time, ask!

10.   10 days before the Oral Presentation or the delivery of your case study, I will not answer questions anymore (see Questions Exchange).

Not using the availability of the speaker (during the classes or by e-mail) and get a job badly done: you will be in a loss-loss situation. Asking questions of elementary level (I had some …) or contained in the FAQ ...


Notation    Top

You have 2 files to send in Office 2003 format only  (if I can not open it I can not give you a score):  A Power Point presentation (or Word), a tool to evaluate the price  of the product (price in Excel). 

Remember that:
- Studies in 1 to 3 stars are for pairs, and 4 and 5 may be for trinomials or 4 students. The file 
Choice of Case Study provides the necessary clarifications, 
- I may withdraw subjects with 1 star 
- The more starts the more my indulgence, the more students per group the more I’m demanding 
- I believe there is enough case such that 2 groups did not take the same subject (1 point of penalty if it’s the case).

The PowerPoint file will be the basis of your oral presentation (needed even if there is no formal Oral Presentation) and development of the marketing part: 
- Account for 8 points / 20, split in 
- 50% for creativity and marketing (names, slogans, logos, visuals, videos, ...), 20% for pedagogy (pros and cons, clarity, vocabulary, graphics, ...) and 20% for the quality of animation (broke the ice ! - enthusiasm,  ...), 10% in respect of timing 
- Plus a bonus of 10% on the Imagination, and 
- A 10% bonus for the quality of your question to the group before you during the Oral Presentation (I consider the quality and relevance of the question). 

The Excel file contains all the calculations (Part Pricing) with clarity: 
- Account for 12 points / 20, each Excel file detailing the number of points per question, 
- Beyond this allocation, I would also consider various aspects including ... 
- ... 40% for the quality of the intellectual approach, 40% for the accuracy of results and 20% for the “user-friendlyness” (all calculations are related, few cells to modify, macros, ...) 
- Plus a bonus of 10% for your response to my question during the Oral Presentation. 

Before the Oral Presentation, make sure you do not have technical problems (which computer is used, test the overhead projector, compatibility of the USB sticks, coffee and cakes ...). Remember that any delay du to technical reason will be deduced to your time (about 10 mn). 

Depending on the timing of the course and submission of copies, I can decide to relieve you of the Secondary Market part of your subject. In this case it will be optional and if completed, you will earn up to 3 additional points. 

No Oral Presentation & / or delay to send the files (at the latest email them the day BEFORE your Oral Presentation or if there is no Oral Presentation before the day and time agreed in class): 1 point per hour of delay (any hour started is due) up to 5 penalty points.
"Forgetting" to send the Excel file: rating on 8 points.

Earn points with the Exchange Questions! 

Participation in courses (beyond the simple presence ...) I will round up the score or even give you more points.

If you wonder why I put so much energy to implement the Exchange Questions, please note that in this profession you must be humble and ask rather than make a mistake, often very expensive. All this enables me also to reinforce my idea that you had all the means to make a perfect copy and so I can satisfy my impulses to give severe rating.


Mail  Top

Each mail you address to me must contain the name of the case study in the subject, give me your GSM number :  a call often save time.
Always keep the history of email attached to your new questions.
Each versions of Excel files (and Power Point) have to end by an new number. Must be Office 2003, no Rar file.

Remember, the simplicity of the Excel file are noted.

Each group is entitled to 3 email exchanges after that ... consider the Exchange Questions. Ten days before the Oral Presentation or the date of receipt of your duties, I will not answer questions (cf. Exchange Questions). 

Exchange Questions   Top

The principle is to connect those who have further questions (applicants) and those who have some knowledge and time (suppliers). To create this market and to encourage suppliers, each supplier will increase its rating by 0.50 points by simply registering on the Stock Exchange and answer at least one question (pay as Market Maker ... I would uncover the sleeping "partners" and other free-rider).
In Excel, you will find the value of each question in base 100 (100 QP = 20 points or 5 Qp = 1 point on the final grade; Question QP's Point). 

How works this market?
- The suppliers reported by mail to the CHEQ (Clearing House Exchange Questions ... ie me) if they want to participate in this market and thus earn 0.50 points as soon as they answer to one question (even though they are not the ones selected as the best answer);
- Applicants shall send questions to the CHEQ with QP price you're willing to pay (it is rational to propose a price below what the question really is worth...)
- CHEQ matches anonymously buyers and sellers, the latter one that offers the most accurate answer (verified at 100% by CHEQ) and the fastest wins the double of the price offered by the applicant,
- CHEQ records  the “trade”, credit and debit account.

The QP used (applicants) or credited (suppliers) will be converted into points (5 QP = 1 point) and will impact the final grade.
a. Team 1 offers 1QP to answer a question worth 5QP (proposal send at the CHEQ). The price is low because, for example, Team 1 has already answered part of the question.
b. The Team 2 and Team 3 are as listed as offers and accept the demand (and therefore the price), sent their reply to the CHEQ and receive QP 2.5 (or 0.50 points), simply by being active on this market (Welcome Bonus applicable only for the first answer).
c. The CHEQ selects the best response (eg. Team 2), check/correct it and sends it to the Team 1.
d. The Team 2 receives 1 x 2 = 2QP as teh Winner Price (or less if the correction by CHEQ is important). The Team 1 is charged 1QP.
e. Imagine that during the final evaluation, the response is evaluated 4.5QP on 5 then in net: Team 1 will get 4.5 - 1 = 3.5QP (vs. 0QP if no answer or wrong answer), Team 2 will have Welcome Bonus + Winner Pric e= 2.5 + 1 x 2 = 4.5 QP.

Simplification Top
Do not include fees that may appear in your brochure. Also, if the initial or final level is calculated from an average, please disregard it and consider only 1 fixing.


Question Flash    Top
Contains 70% of answer needed to solve your study ...

Marketing   Top
For this part use your imagination while respecting the characteristics of the product: new bank name and product, new slogan ... creativity is encouraged and the humour is allowed.

Calculation of a performance   Top
The calculation of performance is normally done by:
(Final Value - Initial Value) / Initial Value. This calculation is sometimes modified by changing the denominator (reference value).
To recall, the option offers a performance but:
- Payment in euros (cash Settlment) the amount of gain,
- Physical delivery of the underlying against payment of the exercise price (= Physical Settlment).
Finally, if your case study provides the calculation of an average of course does not take into account and consider only one value and not the average (either for the first or the last level).

Forward   Top
Equilibrium value in T years of a financial asset (or expected price of this asset).
Two approaches are possible and equivalent. Whether you consider the probability distribution followed by the underlying and compute the expected value in T year. Either follow the principle of no arbitrage opportunity (see courses).

Secondary Market   Top
This section aims to give a price to the product if we look towards the future. To do this, we recalculate each parameter needed to price the product. Except in this part (Secondary Market), I remind you that we are at the time of issuing the product.
The calculation of the product may be refined taking into account the real market conditions. Any purchase of product is done at the Ask price (amount requested for the purchase) and sales at the Bid (resp. offer). The difference between ask price and bid price is called the spread Bid-Ask (Ask> = Bid then spread Ask Price - Bid Price).
Remember, if to build the product you buy an instrument (paid price = Ask), you have to reevaluate it at its resale value (Bid): value at which you can resell it if the client ask to be redeem before maturity.

Rates Curve   Top
The values shown are in percentage. Rates are by default on an annual basis, even for a rate maturing in less than 1 year.
The short term (up to 1 year) is Money Market (Act/360) basis, beyond the basis is Bond Basis (30/360). By definition, short rates do not pay coupon (intermediate = before maturity); long term rates pay coupons by default.

Zero Coupon   Top
Rate such that the investment does not pay any coupon during the life of the product but only at maturity.
The course contains the formula for the transition from "coupons"-rates to zero-coupon rates. Switch after to continuous rates. The ZC rate continuous has  to be used in the B&S formula.
For information, the ZC 10 years discreet is worth 5.4898%  and in continuous 5.3444% (curve with 0 shift).

Continuous Rate   Top
Theoretical rate that capitalizes every second.
The formula takes into account the frequency of composition by year (eg m = 2 for biannual rate, ie who pays a coupon C / 2 each 6 months).

Volatility Surface Top
The values shown are in percentage.
The volatility surface provides the expected volatility based on the maturity and exercise price of the option. Indeed, to fill a gap in the B & S model, the volatility is not unique, whatever the maturity of the option and the exercise price of the option. It is an unique data as a function of these 2 variables. For the same maturity, volatility expressed in terms of exercise price looks like a "Smile".

Interpolation   Top
The market data are often incomplete. Interpolation is necessary to find intermediate values.
If you choose the linear interpolation: Y2> Y> Y1 and X2> X> X1 then Y = Y1 + (X-X1) * (Y1-Y2) / (X2-X1).
The interpolation with a constant variance is seen during the course.

Initial Value   Top
Your subject specifies the starting value of your underlying. This value is in the tab of the volatility surface cell C1. If you prefer, change it to 100. Similarly, you can consider that the client invests 100 in the product. 

Calculate the up-front margin  Top
The structure must achieve a certain margin (and therefore independent of market conditions). This margin is calculated today (ie up-front). The calculation of a margin is the difference between the sale price and the cost of manufacturing the product.

Pricer Excel  Top
It will take the form of an Excel 2003 (to be completed if existing, do not rename, no xlsX format, max. size 1Mo). It must be user-friendly (flexible, explicit, flexible, ... results automatically adjusted by changing settings or market data - such as maturity, indexation, volatility ... -).
The file will contain as many tab that questions in the subject (recall each question, even if you do not respond in the tab).

The first tab should contain a summary of your results. BE SURE that ALL your results are clearly visible in this sheet ...

Power Point Presentation    Top
Make a presentation in Power Point 2003 format (not2007, no pptX, max. size 1Mo) of 15 to 20 slides for a duration of 12 minutes (practice it !). In case of Oral Presentation, it will by your main support.
It will include, in bullet-point, two parts:
 - The first customer-oriented (your audience), including the Marketing part
 - The second for your Boss: presentation of financial instruments, to structuring schema, Pricing Part (results only), what were the difficulties encountered, technical issue, Specific Questions part, Secondary Market (only the last 2 questions), finish the presentation by the Imagination part.

Oral Presentation   Top
It will last 10 to 12 minutes per case study. You start with the Client part then the Boss one. Normally, only the Power Point Presentation will be shown.
The audience attentive and respectful of others' work will be rewarded for any constructive question.

During the Oral Presentation I will take into account (see Notation):
 - Your ability to "break the ice”, your conviction and ability to maintain attention,
 - Your creativity and originality,
 - The quality of arguments,
 - Clarity and pedagogy,
 - Timing.
In addition, two questions will be raised and noted:
 - The first by the group that will follow,
 - The second focused  on technical or pricing from me.