Exotic Options - Pricing, Hedging and Applications

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 An Introduction to Exotic Options

• What is an “Exotic Option“?
• Types of Exotic Options
• Classification of Exotic Options
• Overview of Applications

Modelling Issues and Valuation Methods

• Review of concepts in option pricing theory
• Black-Scholes Model
• Cox-Ross-Rubinstein binomial model
• Generating Payoffs
• Approaches to Hedging
• Monte Carlo Toolkit
• Small Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Path-Dependent Options (1): Barrier Options

• Definitions and characteristics
• Types of Barrier Options
  • Knock-in and Knock-out
  • Single and Double Barriers
• Modelling Pay-Offs
• Pricing and Hedging
• Risk Sensitivities
  • Delta, Gamma, Vega etc.
  • A Closer Look at the Behaviour of “Greeks” Around the Barriers
• Examples of Applications
  • Reducing Hedging Costs with Barrier Options
• Exercise (Double Barrier Option with Rebate)

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Path-Dependent Options (2): Asian Options

• Average Rate and Average Strike
• Averaging methods
• Modelling pay-offs
• Pricing and Hedging
• Practical Applications and Exercises

Path-Dependent Options (3): Look-Backs, Ladders and Ratchet Options

• Look-Back and Look-Forward Options
• Ratchet (Clique) Options
• Ladder Options
• Pay-offs Types (Sampling of Max/Min)
• Pricing and Valuation Issues
• Cases and Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Discrete Pay-Off Options

• Euro-Digital Options
• Contingent Premium Options
• One and Two Touch / American Digitals
• Double No-Touch
• Pricing
• Examples of Applications
• Exercise

Other Options

• Compound Options
• Chooser Options
• Pay Later (Contingent Premium) Options
• Delayed Options
• Pricing
• Examples of Applications
• Exercises

Day Three

09.00 - 09.15 Recap

09.15 - 12.00 Multivariate Options

• Basket Options
• Rainbow Options
  • “Best of”/ “Worst of” Options
  • Option on the Max or Min of N Assets
  • Multi-Strike Options
  • Spread Options
  • Exchange Options
• Applications of Multivariate Options
• Exercise

Quanto Options

• Definitions and Characteristics
• Types of Quanto Options
• Pricing of Quanto Derivatives
• Examples of Applications

12.00 - 13.00 Lunch

13.00 - 16.00 Financial Engineering with Exotic Options

• Purpose of Constructing of Exotic Structures
• Plain vs. Embedded Exotics
• Examples
  • Range Floaters
  • Continuous Accrual Currency Note with a One-Touch Knock-out Range
  • Up-and-Out Indexation
  • Step-Lock and Clique Structures

Risk Management of Exotic Options

• Effectively Managing the Risks of a Portfolio of Exotic Options

Evaluation and Termination of the Seminar