Equity Derivatives

Understand how to price and structure equity derivatives and learn exactly how to use them in practice. Taught by one of the leading experts in the field, this is the only equity derivatives course you'll need. 

Course Highlights

For details of the course trainer, please download the course brochure

Booking Information

Dates	Prices	Book This Course	Discount
11 - 12 Oct 2010	£ 1999		-
31/Mar - 01/Apr 2011	£ 1999		-

Course Programme

DAY 1

Introduction:What are Equity Derivatives?

• Broad range of products from simple exchanged traded to complex bespoke OTC, structured products and securities such as convertible bonds
• Equity derivatives on single equities, baskets of equity and indices
• Why are equity derivatives used?
• Who are the major users of equity derivatives?
• Impact of the credit crunch on equity derivatives

Equity Forwards, Futures and Swaps

• Structure of the basic "delta equals one" contracts
• The exchange-traded and OTC markets
• Credit implications including ISDA documentation and the credit support annex
• Use for risk transfer (hedging), leverage and dividend optimisation
• Review of pricing considerations – cost of carry, forward prices, stock lending and the impact of taxes
• Pricing and risk characteristics

Equity Options

• Structure of option contracts
• Vanilla and exotic options
• The exchange and OTC markets
• Use of equity options for risk transfer, leverage and arbitrage
• Pricing equity options – Black-Scholes model and its limitations
• The roles of volatility – historic and implied, smile and skew

Equity Option Pricing and Risk

• Review of basic arbitrage pricing model
• The binomial model
• Input to the model
• Outputs from the model
• The risk sensitivities or Greeks
• Simple delta hedging

DAY 2

Equity Structured Products for Retail Customers

• The market for structured products
• Equity derivatives as securities
• Equity warrants
• Benchmark units – Opals,Webs, ETFs
• Capital guaranteed products – GEBs, cliquets…
• Analysing the structure of products
• Defining participation and floor values
• Customising structures - examples

Using Equity Derivatives To Provide Solutions for Fund Managers / Hedge Funds / Insurance Companies

• What kind of issues do fund managers face?
• How can equity derivatives assist them?
• Customising exposure / risk management / hedging
• Tracking indices / benchmarking
• Enhancing dividend flows
• Protecting returns
• Leverage
• Yield enhancement

More Exotic Equity Derivatives and their Uses

• What does exotic really mean?
• Why use exotics?
• Path dependents – Barriers / knock-outs / knockins / corridors / ladders
• Currency protected – Quantos / compos
• Multi asset
• Fund derivatives
• CPPI
• Volatility swaps

Summary session with Q&A

Case Study

Workshop Case Study

Case Study

Case Study

Work

 

 

 

 

 

 

A brief review of the basics

• Equity financing and ownership in corporations
• Ordinary stock, cumulatives, preferences shares, convertible bonds
• Bankruptcy rights and rights to dividends, rights issues and pre-emption
• Yield curves and present value theory
• Volatility and distributions
• Basic probability

The range and scope of equity markets

• A review of their development
• Current market volumes
• Developing and emerging markets
• OTC and exchange-traded markets
• Risks and returns specific to equities

What are equity derivatives?

• Equity properties
• corporate ownership
• dividends
• voting rights
• Hybrid equities
• indices
• baskets
• ADRs (American depository receipts)
• GDRs (Global depository receipts)
• enhanced return products
• The attraction of the asset class

The issuer, the investor and the investment bank perspectives

• Their role in the creation of equity derivatives
• Advantages and disadvantages of equity derivatives to each market participant

Getting to grips with equity derivatives

• Forwards and futures
• Options – vanilla calls and puts
• Equity swaps
• Hybrids
• equity and fixed income asset class mixed
• convertible bonds / company issued warrants

Pricing considerations

• Forward prices
• dividends
• interest rates
• stock borrow / lend
• Volatility
• Correlation
• Black-Scholes pricing assumptions

Option pricing techniques

• Black-Scholes
• Monte Carlo
• Price sensitivities – the "Greeks"
• Portfolio aggregation
• Scenario analysis
• Stress testing

Case study: Pricing a cliquet bond structure using forward / forward volatility in the Black-Scholes universe.

Understanding equity derivative structures - part 1

• Listed products
• Liffe stock / index options call / put
• futures
• OTC products
• vanilla
• simpler exotic – barrier / currency protected
• warrants including "covered" warrants
• "cliquets"
• dividend swaps
• PEAs (Plan Epargne Actions)
• life insurance products
• guaranteed bonds based on one and two indices
• CPUs (Capital Protected Units)
• building society equity-linked bonds
• equity swaps

Understanding equity derivative structures - part 2

• Exotic options
• barrier – knock out and knock in
• quanto
• power
• locking / ladder
• spread
• Volatility swaps / options
• Special risks, such as PIN risk in barrier options
• Currency convertibility risk
• Re-investment risk
• Currency protected structures
• Global structures

Case study: Analysing the dynamic hedging of a covered warrant issued by an investment bank (including initial hedging at launch, secondary market making, delta rebalancing and gamma control) as the issue becomes close to expiry.

The risk management of equity derivatives

• Scenario aggregation of risk
• Setting of risk limits
• Using VaR analysis to manage market risk
• Managing credit risk using
• conventional credit risk measures
• credit models
• Model recognition processes
• Regulatory capital treatments
• Taxation issues
• income vs. capital gains
• different tax domiciles

Structured solutions to efficient equity portfolio management

• Equity performance evaluation and benchmarks
• Equity derivatives strategies to enhance benchmark relative performance
• customised listed exposure
• portfolio hedging
• yield enhancement
• Capital protected asset allocation
• Exchangeable securities
• Equity-linked notes
• Securitised benchmarking (OPALs / WEBs / benchmark units)

 

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