Financial Derivatives - Instruments, Mechanics and Markets
Duration:
3 days
3 days
Location:
Prague, Mövenpick Hotel
Prague, Mövenpick Hotel
- Futures and Options
- Forward Rate Agreements
- Interest Rate and Currency Swaps
- Interest Rate Options
- Credit Derivatives
- Exotic Options
- Applications, Pricing and Risk Management
The purpose of this seminar is to give you a good understanding of financial derivative markets and instruments and of the “mechanics” and applications of these instruments.
We start overview of derivatives and derivative markets and we explain the main characteristics of derivative instruments. We also explain the important differences in terms of liquidity, flexibility and counterparty risks between the two “market forms”: listed and OTC.
We then introduce and explain in turn the different types of instruments. We first look at futures and options. We define the instruments and we explain how they are traded and settled. We explain thoroughly how the instruments are priced using standard pricing models such as “cost-of-carry” for futures and the “black-scholes” and numerical models for options. We also show how to calculate important risk analytics such as delta, gamma, vega, theta and rho, and we explain how these analytics should be interpreted.
We then introduce Forward Rate Agreements, Interest Rate Swaps, FX forwards and Currency Swaps. In each case, we explain their time profiles, cash flows and trading and settlement mechanisms. We show how these instruments can be priced and valued using yield curves, discount factors and FX rates, and we explain how to assess their risks. We also present and analyse Caps, Floors, Swaptions and other types of interest rate options.
Further, we introduce and explain the mechanics of credit derivatives such as “credit default swaps”, “total return swaps” and credit options. We also look at structured credit products such as credit linked notes, leveraged credit-linked notes and CDOs.
Finally, we present and analyze a number of exotic derivatives such as Asian options, lookback options, barrier options, digital options and compound options. We explain the pay-off profiles of these options, and we give examples of their applications in trading, investing and risk management.
We start overview of derivatives and derivative markets and we explain the main characteristics of derivative instruments. We also explain the important differences in terms of liquidity, flexibility and counterparty risks between the two “market forms”: listed and OTC.
We then introduce and explain in turn the different types of instruments. We first look at futures and options. We define the instruments and we explain how they are traded and settled. We explain thoroughly how the instruments are priced using standard pricing models such as “cost-of-carry” for futures and the “black-scholes” and numerical models for options. We also show how to calculate important risk analytics such as delta, gamma, vega, theta and rho, and we explain how these analytics should be interpreted.
We then introduce Forward Rate Agreements, Interest Rate Swaps, FX forwards and Currency Swaps. In each case, we explain their time profiles, cash flows and trading and settlement mechanisms. We show how these instruments can be priced and valued using yield curves, discount factors and FX rates, and we explain how to assess their risks. We also present and analyse Caps, Floors, Swaptions and other types of interest rate options.
Further, we introduce and explain the mechanics of credit derivatives such as “credit default swaps”, “total return swaps” and credit options. We also look at structured credit products such as credit linked notes, leveraged credit-linked notes and CDOs.
Finally, we present and analyze a number of exotic derivatives such as Asian options, lookback options, barrier options, digital options and compound options. We explain the pay-off profiles of these options, and we give examples of their applications in trading, investing and risk management.
13.00 - 16.30 Futures and Options (Continued)
- Valuation and Risk Assessment of Options
- Put/Call Parity
- "Intrinsic" and "Time Value"
- Simple Option Pricing Model
- The Black-Scholes/Black Models
- The Cox-Ross-Rubinstein Model
- Option Price Sensitivities (“Greeks”)
- Computer Simulations
- Applications of Futures and Options
- Trading Strategies
- Hedging Interest Rate Risk, FX Risk and Equity Risk
- Small Exercises
Day Two
09.00 - 09.15 Recap
09.15 - 12.00 Forward Rate Agreements
- Quick Review of Mechanics
- Pricing and Risk Assessment
- Applications
- Small Exercises
Swaps
- Quick Review of Swaps Basics
- Pricing and Risk Assessment of Interest Rate Swaps
- Pricing and Risk Assessment of Currency Swaps
- Non-Generic Swaps
- Accreting and Amortizing Swaps
- Forward Starting and Arrears Reset Swaps
- Constant Maturity Swaps
- Overnight Index Swaps
12.00 - 13.00 Lunch
13.00 - 16.30 Swaps (Continued)
- Examples of Applications of Interest Rate and Currency Swaps
- Small Exercises
Interest Rate Options
- Interest Rate Guarantees, Caps, Floors and Collars
- Pay-of profiles
- Valuation and Risk Assessment
- Swaptions
- Types, Applications
- Valuation and Risk Assessment
- Cancellation and Extendable Swaps
- Exercises
Day Three
09.00 - 09.15 Recap
09.15 - 12.00 Credit Derivatives
- Introduction to Credit Derivatives
- Credit Default Swaps
- Total Return Swaps
- Credit Options
- Credit Spread Options
- Structured Credit Products
- Credit-linked Notes
- CDO’s and Synthetic CDO’s
- Pricing and Risk Assessment of Credit Derivatives
- Applications of Credit Derivatives
- Buying and Selling Credit Risk
- Hedging Against Spread Changes
- Small Exercises
12.00 - 13.00 Lunch
13.00 - 16.00 Exotic Options
- General Introduction
- Asian (Average Rate) Options
- Lookback and Touch Option
- Digital Options
- Barrier Options
- Basket Options
- Compound Options
- Chooser Options
- Rainbow Options
- Examples of Applications
- Small Exercise
Evaluation and Termination of the Seminar
