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Credit ratings, pricing and returns

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Yield Curves - 2 Days

The term “yield curves” are often bandied about but usually only those who work with them understand what they are and how they are used. In a number of countries there is an “official” yield curve off which everyone works. In South Africa, the Bond Exchange is attempting to institute a similar policy, but without much success. Each bank has its own proprietary curve – thereby resulting in pricing and valuation differences. Topics to be covered include:

  • What is a yield curve – a very brief description of the make up of a yield curve.
  • Types of yield curves – par curves v zero coupons v forward/forwards
  • Yield curve shapes and a bit about the various yield curve theories.
  • All of the above serve as an introduction to the real nitty gritty.
  • How to construct a yield curve – here I can show how to construct either a zero coupon yield curve or a forward/ forward curve, which is a bit mathematical but we don’t need to go into too much detail.
  • How to use yield curves in the valuation process.
  • Duration and convexity and how they impact upon the valuation of assets when rates move – once again a bit mathematical but of extreme importance in explaining how valuations change over time as well as due to changes in rates
  • Some yield curve “plays” – covering jargon such as straddles etc