Derivatives: 2-Day Intensive Bootcamp


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  • Date TBA
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  • Level: Beginner to Intermediate
  • 14 CPE Credits
  • Group-Live
  • Prerequisite: none
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  • US $1,695
  • Group discounts available

INSTRUCTOR

Douglas C. Carroll    Read bio

course overview

This two-day seminar provides a broad overview of all major types of derivative instruments: futures/forward contracts, options and swaps.  Presentation will introduce and explain the key characteristics and contract features of the various derivative instruments.  Discussion will highlight cash flows, risks and valuation considerations and their implications for trading/risk management strategies for each type of derivative. These issues will be discussed in context, from a practitioner perspective (dealers, floor traders, portfolio managers, hedge funds, arbitrageurs, etc.), using current/recent market events to illustrate topics being presented.

The program begins with an introduction to the basic features of derivatives: the shared characteristics that distinguish derivatives from other types of financial instruments (securities or currencies) and the unique elements that differentiate the various derivatives one from another.  This will be followed up with a detailed look at each major type of derivative in turn.  Each section will commence with an investigation of fundamentals: terms and definitions; contract features; rights/obligations of parties to the contract (long and short positions); risk exposure (gain/loss) profiles for long and short positions.  The discussion then turns to valuation considerations, methods used by market participants to assess relative value (arbitrage pricing relationships and pricing models) and how the insights from these assessments are used in formulating trading and hedging strategies.  Discussion will also touch on associated operations and regulatory considerations including: clearinghouses (exchange and OTC), Dodd-Frank, CFTC and ISDA®.

course details

Introduction to Derivative Instruments

By the end of the session, participants will be able to:

  • Discuss derivative terminology and definition
  • Explain general characteristics of derivatives
  • Compare derivatives to securities
  • Apply risk management strategies
  • Recognize advantages/disadvantages of trading derivatives versus underlying assets

Futures and Forward Contracts

By the end of the session, participants will be able to:

  • Discuss terminology and definitions
  • Differentiate exchange traded (listed) versus over-the-counter (OTC) contracts
    • Auction markets, electronic trading and dealer markets
    • Standardized versus non standardized (negotiated) contracts
    • Daily settlement versus collateral calls
  • Discuss Clearinghouses
    • Futures exchange clearinghouses compared to OTC clearinghouses
    • Clearing members, non-clearing FCMs, IBs and customers
    • Impact of Dodd-Frank and related issues
  • Identify Rules and Regulations
    • Commodity Futures Trading Commission (CFTC)
    • National Futures Association (NFA)
    • International Swap and Derivatives Association (ISDA)
  • Identify types of contracts (equity, currency, energy, etc.)  
  • Pricing/valuation of futures and forward contracts
    • Forward pricing curve
    • The cash/futures price difference (basis) and convergence
    • Cost of carry arbitrage pricing
    • Normal and inverted futures markets (contango and backwardation)
  • Explain trading and risk management applications
    • Hedging/risk management strategies
    • Risk/return profile of hedged positions
    • Necessity of weighting hedges in equities, interest rate and fixed income

    Introduction to Option Basics (illustrated using a long equity call position)

    By the end of the session, participants will be able to:

    • Discuss terminology and definitions
    • Describe option contract characteristics
    • Identify cash flows at open or closing of position
    • Explain closing sale compared to exercise of contract
    • Exposure (gain/loss) profile
    • Recognize risk and return characteristics
    • Discuss buying puts and writing (selling) calls and puts compared to long call positions
    • Identify other types (futures, currency and interest rate) compared to equity options
    • Compare American versus European style options

    Pricing/Valuation of Options

    By the end of the session, participants will be able to:

    • Identify option value determinants (pricing model inputs)
    • Discuss Black-Scholes and binomial pricing models
    • Explain put/call parity and its trading applications
    • Comprehend option price sensitivities (option “greeks”)
      • Delta, delta hedging and delta neutral
    • Define implied volatility and understand how it’s used in trading

    Trading and Risk Management Strategies

    By the end of the session, participants will be able to:

    • Identify and explain various strategies including:
      • Directional strategies
      • Volatility trading
      • Hedging strategies
      • Delta hedging and delta neutral hedge ratio

    Forward Commitment Swaps (Interest Rate, Currency, Equity and Commodity)

    By the end of the session, participants will be able to:

    • Discuss terminology and definitions
    • Describe swap contract characteristics
    • Explain and understand interest rate swap contracts
      • Contract specifications (negotiated by counterparties)
      • Notional amount, tenor (term/maturity), settlement frequency
      • Plain vanilla swap; fixed (coupon) rate versus floating (index) rate
        • Cash flows and risks of clearing versus ex clearing contracts
        • Other types: amortizing, accreting, rollercoaster and basis swaps

      Risk Management with Interest Rate Swaps

      By the end of the session, participants will be able to:

      • Explain cash flow hedging – converting between a fixed rate and a floating rate
      • Describe value hedging and positioning – exposure based on duration of swap

      Currency swaps

      By the end of the session, participants will be able to:

      • Identify exchange of interest rates in different currencies
      • Discuss two notional amounts (which may be exchanged)
      • Describe structure of currency swaps
      • Recognize risk management applications
         

      Equity Swaps

      By the end of the session, participants will be able to:

      • Recognize one or both legs based on equity performance
      • Discuss individual equity, recognized index or unique portfolio
      • Explain total return versus return in index points
      • Identify implications for cash flows and notional amount of contract
      • Discuss risk management applications
         

      Commodity Swaps

      By the end of the session, participants will be able to:

      • Compare commodity swaps to interest rate swaps
      • Discuss commodity swap price
      • Recognize variations in commodity swaps contracts
         

      Credit Default Swaps

      By the end of the session, participants will be able to:

      • Define and discuss CDS contracts
      • Identify common swap provisions including:
        • How these features of CDS contrast with those of interest rate   swaps
        • Identify CDS specific issues
          • CDS spread
          • Credit events (triggers or defaults)
          • Reference issuer(s)/obligor(s) or issues/obligations
          • Settlement: cash settlement or physical delivery
          • Discuss standardized CDS contracts
            • Quarterly payment dates (20th of March, June, September and December)
            • Specified coupon (US - 1% investment grade, 5% high yield)
            • Seller owes buyer accrued coupon at inception
            • Credit events (US - failure to pay, bankruptcy)
            • Auction to determine settlement value following credit event
            • Describe capital market equivalent positions
            • Explain and discuss risk management/trading applications of CDS

       

      In-house instruction is available.  Contact us to inquire.


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