This past Thursday, April 6th, Ajay Bhatt of Credit Suisse presented an introductory lecture on Securities Pricing to a room packed with students. While we at ZFAA are particularly inclined to inform our fellow students about forensic accounting topics and careers, we also understand that having a strong foundation in the fundamentals of other areas, such as finance, can make one that much stronger of an accountant. For that reason, we invited Ajay, Credit Suisse's Director of Strategy and Governance, come in to teach students about some of the fundamentals of pricing in different financial scenarios.
Ajay started his introduction to Securities Pricing by mentioning that the foundation to most securities pricing lies in the equation for Future Value.
• Future Value = Present Value * (1+r)^t
• r = interest rate
• t = time
He mentioned how this formula could be manipulated to help one understand discounting, which allows one to ascertain what a dollar in the future is worth today. He revealed one can manipulate the equation above to find discount values such as:
• Present Value = Future Value/(1+r)^t
Building on this major concept, Ajay continued to explain the Dollar Discount Factor Formula which is used to determine the future value of a dollar
• $ Discount Factor = $1 / (1+ri/n)^ti
• n = # of periods per year
• i = a period of time
Soon enough, he moved the students from fundamentals to more complex strategies to successfully price the following:
• Vanilla Par Bonds on Issuance as well as in the Secondary Market
• Forward Rate Agreements (an agreement by two parties to enter into an interest rate contract at some point in the future with a set interest rate)
• Foreign Exchange Forwards
• Interest Rate Swaps
• Equity, Interest Rate, and Foreign Exchange Projecting
Ajay's zeal for his work in Securities Pricing for risk management purposes really kept the room alive. His comprehensive explanations and simplified examples allowed students to grasp the concepts and the implications of their importance. ZFAA considers Thursday a success. We look forward to working with him again in the future.
By Anthony Policastro, Edited by Serena Law