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Understanding & Using Options

The practicalities of valuation, hedging and structuring 

Course Highlights

Attend this comprehensive training course and:

  • Understand the mechanics of option pricing and valuation
  • Create trading strategies using single and multiple options
  • Learn how to exploit arbitrage opportunities using leverage
  • Develop efficient hedging strategies and understand when they can fail
  • Understand how to manage the risks inherent when using options
  • Learn practical techniques for building and pricing sophisticated structured products

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

Booking Information

Dates Prices Book This Course Discount
10 - 12 Nov 2010
£ 2199
Book the course now.
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04 - 06 Apr 2011
£ 2199
Book the course now.
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Course Programme

Day 1

 Introduction

  • Current financial markets
  • Classifying financial products: cash vs. derivatives
  • How derivatives fit in 

A Brief Review of Option Markets

  • Listed products
    • Futures
    • Options
  • OTC markets
  • Equity options and warrants
  • Commodity derivatives
  • FX and interest rate derivatives
  • Convertible bonds 

Introducing the Mathematics of Derivatives

  • Yield curves and present value theory
  • Volatility and distributions
  • Basic probability 

Terminology and Basics

  • Calls and puts
  • European, Asian, American and Bermudan options
  • In, at and out of the money
  • What makes an option valuable? 

Getting to Grips with Derivatives

  • Forwards and futures
    • Dividends
    • Interest rates
    • Stock borrow
  • Arbitrage arguments
  • Valuation and mark to market 

Basic Option Structures

  • Call spreads and put spreads
  • Straddles and strangles
  • Butterflies
  • Risk reversals
  • Covered calls
  • Synthetic forwards 

Option Workshop: A first look at Black Scholes 

Day 2

Practical Pricing Considerations

  • Volatility and Black Scholes
    • Historic volatility
    • The Lognormal model
    • The Black Scholes formula
    • Black Scholes assumptions
  • Price sensitivities and the Greeks
  • Delta, Gamma, Vega, Rho
  • Implied volatility 

Demystifying Black Scholes

  • The Black Scholes equation
  • Hedging 

Option Workshop: Pricing and the Greeks in Excel 

Excel Demonstration: The Black Scholes formula as the cost of hedging 

Getting to Grips with Volatility

  • Understanding volatility
  • The key role of volatility in pricing
  • The volatility smile
  • Understanding Vega 

Basic Interest Rate Derivatives

  • Libor rates and forward Libors
  • Caps and floors
  • Interest rate swaps
  • Cross currency swaps
  • Basis swaps
  • Swaptions 

Structured Products

  • Capital guaranteed products
  • CBs and reverse CBs 

Day 3

Option Workshop: Portfolio hedging simulation 

Exotic Options

  • Asian options
  • Forward starting options and cliquets
  • Quanto and other currency protected structures
  • Digital options and range accrual structures
  • Barrier options
  • Spread options
  • Autocallables 

The Volatility Information in Structure Prices

  • Volatility and straddles
  • Volatility and butterflies
  • Volatility and risk reversals 

Tree Pricing

  • Binomial trees
  • American option pricing on trees
  • Discrete dividends
  • Convertible bonds on trees
  • Callable CBs 

More on Volatility

  • Volatility estimation
  • Autocorrelation
  • GARCH methods
  • Stochastic volatility models 

Option Workshop: Hedging in uncertain volatility regimes 

Currency Options

  • FX options
  • The Garman Kohlhagen model
  • Structured products with FX options 

Case Study: Dual currency bonds 

New Generation Structures and Model Risk

  • Volatility and variance swaps
  • Dispersion trading
  • Basket options
  • Types of model risk in derivatives pricing and hedging
  • Model risk mitigation