DERIVATIVES MASTER CLASS


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  • Level: Beginner to Intermediate Level
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  • US $1,995
  • Group discounts available

INSTRUCTOR

Douglas Carroll  Read bio

course overview

The Derivatives Master Class is a two-day program designed for those already familiar with the basic contract features and terminology of derivatives who are seeking to take to the next level their understanding of derivative valuation, risk management and trading strategies. The program will be apportioned about evenly between futures, options and swaps. Each product segment will begin with a quick review of the ways in which contract features impact the risk/reward characteristics of the derivative instrument being discussed. That discussion will provide a natural lead into an exploration of widely used methodologies for pricing and valuation. The presentation will emphasize how these insights from these valuation methodologies are used to assess the attractiveness of various trading strategies and inform as to the optimal contracts to employ when undertaking a given strategy. Each product section will conclude with an exploration of typical positioning and risk management strategies employed by traders, hedge funds and investment portfolio managers.

who should attend

The seminar would be useful for anyone whose duties entail some exposure to any derivatives related business activities. The program would be especially helpful to those working in areas supporting derivatives trading or sales as well as middle and back office areas such as:

  • Clarence and settlement
  • Compliance
  • Audit or financial control
  • Systems/information technology
  • Portfolio administration
  • Marketing

The program would also be useful to investment professionals with some derivatives experience that are seeking to deepen their knowledge of the topic:

  • Securities traders
  • Securities portfolio managers
  • Securities sales

course details

Futures

FUTURES PRICING AND THE FORWARD (FUTURES) PRICING CURVE

Futures Prices, Derivatives and Price Discovery

Futures Pricing – Cost of Carry (Arbitrage) Pricing

                      Composition of cost of carry (carrying charges)

Positive carry and negative carry

                      Implications of carry for the forward pricing curve

Arbitrage Pricing, Where It Holds and Why It Sometimes Doesn’t

                      Conditions necessary for full arbitrage pricing

Why full arbitrage pricing can fail and the consequences

Contango and backwardation

Futures prices versus expectations of future spot prices

HEDGING WITH FUTURES CONTRACTS

            Concept of Hedging

Idealized – futures position exact opposite (offset) to underlying

                      Perfect hedges versus a realized effective price

Complications – standardized futures versus actual underlying

                      Margin finance risk

            Mechanics of Constructing Hedge

                       Long hedges, short hedges and cross hedges

                       Number of futures contracts to fully hedge risk

                       Effective price on a hedged transaction/position

                       Basis, basis risk and how basis changes impact effective price

Hedged versus unhedged positions (basis risk versus price risk)

            Hedging with Equity and Interest Rate Futures

                       Asset underlying futures versus spot market positions of hedgers

                       Relative sensitivities of futures versus underlying

Weighting hedges by beta (equities) or duration (debt/interest rate)

OPTIONS

PRICING AND VALUATION OF OPTIONS

Characteristics of Option Contracts and Option Pricing Basics Determinants of Option Values

Underlying price

                      Strike price

                      Time to expiration

                      Interest rates

                      Volatility

            Option Pricing Dynamics - The “Greeks” and Their Applications

How professional traders quantify risk of option positions

Sensitivity of option price to change in value determinants

                      Permits traders to focus exposures and manage risk

            The “Greeks”

Delta - option versus underlying price changes (dc/ds)     

Theta - premium change due to the passage of time (dc/dt)                    

Gamma - delta’s sensitivity to u/l price change (d2c/ds2)

                      Rho - premium’s sensitivity to interest rate changes (dc/dr)

Vega (kappa) - premium change versus volatility (dc/dσ)

            Interpretations and Applications

                      Methodology for calculation – derivatives of Black-Scholes formula

                      Insights regarding risk of option positions

                      Use in structuring and rebalancing trading strategies

OPTION TRADING STRATEGIES

Option Hedging Strategies

                      Investment/trading objective

Long versus short options as hedging vehicles

                      Delta neutral hedges

Determining appropriate hedge ratio         

                      Dynamic hedging – rebalancing hedge ratio

Volatility Trading

           Types of volatility: historic versus implied

                      Observation of implied volatility: volatility smile and volatility curve

                      Interpretations and implications

                      Mean reversion of implied volatility

                      Delta neutral ratio and back spreads

                     

OPTION PRICING MODELS AND ARBITRAGE PRICING RELATIONSHIPS

Black-Scholes Option Pricing Model

Structure of model

                      Model assumptions

                      Applications

Binomial Pricing Models

Binomial trees – nodes, intervals and centering proposition

Binomial pricing process

Flexible versus standard binomial trees

Arbitrage Pricing – Put/Call Parity

            Conceptual basis – equivalent portfolios

            Interpretations and applications

Synthetic options

Arbitrage trading strategies

Use in selecting options in structuring trading positions

 

SWAPS

INTEREST RATE SWAPS

            Pricing and Valuation of Interest Rate Swaps

                        Pricing at market (par) swaps

                        Pricing MAC (market agreed coupon) standardized swaps

                        Pricing basis (floating for floating) interest rate swaps

            Interest Rate Swaps Applications

                        Converting a floating (fixed) rate liability to a fixed (floating) rate liability

                       Converting a floating (fixed) rate asset to a fixed (floating) rate asset

                       Hedging the value of fixed income securities

EQUITY SWAPS

            Pricing and Valuation of Equity Swaps

Pricing equity for a fixed rate of interest equity swaps

Pricing equity for a floating rate of interest equity swaps

Pricing equity for equity swaps

            Equity Swaps Applications

                        Hedging/risk management of equity exposure

                        Altering portfolio asset allocation

                        Foreign equity exposure without the currency risk

                        Synthetic long and short equity positions

REDIT DEFAULT SWAPS

            Pricing and Valuation of CDS

                        Pricing negotiated single name and index CDS

                        Pricing standardized CDS

            Credit Default Swaps Applications

                        Hedging bond and bond portfolio credit risk

                        Selling credit protection as an element of a fixed income portfolio

                        Buying protection on securities not owned to take a short credit view

VARIANCE SWAPS

            Pricing Variance Swaps

                        Variance (volatility) strike

                        Variance notional

                        Vega notional

            Variance Swaps Applications

                        Going long or short volatility

                        Selling volatility as a risk/return enhancer for a diversified portfolio

                        Buying volatility as macro hedge on tail risk

                        Volatility curve strategies

                        Relative volatility of two securities or indexes

 

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


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