Fixed Income Options

This course covers the option products that are available on a range of fixed income instruments.
/br> It introduces the different options on exchange traded Short Term Interest Rate (STIR) futures. It also covers options on bond futures and how both create exposures to movement in the underlying yield curve.

The course also shows that by combining these different instruments you can create more complex exposures; these can also create limited or unlimited profit or loss potential. Finally, Swaptions are introduced, including how they are quoted, settled, and traded.


This course is for individuals with a working knowledge of the bond market and options.

Learning Outcomes

At the end of this course delegates should understand:

  • STIR options and options on bond futures
  • The mechanics of caps, caplets and floors
  • Swaptions and their applications to curve trades, hedging callable bonds and cancellable swaps

Course Content

Options on interest rate products

  • Exchange-traded STIR options
  • Options on bond futures
  • Yield vol. and basis point vol.

Caps and floors

  • Caps, caplets and floors’ cash flows
  • Fixings and conventions
  • Spot vol. and flat vol.
  • Applications of caps and floors


  • Swaption buyer rights
  • Settlement mechanics, quotation and conventions
  • Payoff profile
  • Swaption volatilities

Applications of Swaptions

  • Swaption curve trades
  • Hedging callable bonds
  • Cancellable swap


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