Advanced Derivatives: Pricing and Hedging

3 to 5 days, depending on objectives and content

 SUBJECT FOCUS AND CONTENT 

·         An overview and review of various derivatives pricing models, starting with analytical models (Black-Scholes and its many descendants) and  comparing these to numerical methods, such as binomial trees (and other advanced lattice models) and simulation models.

·         Pricing and hedging foreign exchange forwards and options using analytical and numerical methods.

·         Pricing and hedging interest rate forwards, swaps, caps, floors, collars, and swap options using analytical and numerical methods.

·         Pricing and hedging bond options and callable bonds using analytical and numerical methods.

·         Pricing and hedging commodity and equity forwards, swaps, and options using analytical and numerical methods.

·         Pricing and hedging various types of exotic options, including Asian, binary, lookback, shout, barrier (knock-outs and knock-ins), quantos, and other types of options using analytical and numerical methods

·         Use of exchange-traded futures in pricing and hedging over-the-counter products.

·         Explanation and comparison of advanced interest rate pricing models, including the Black futures model, Black-Dermann-Toy, Hull and White, and Heath-Jarrow-Morton.

·         Understanding the nature of modeling assumptions and the risks that are created in these assumptions.

·         Risk management techniques and policies for trading positions.

Traders, treasury product specialists, product sales specialists, technical research analysts, and risk managers who must have a very detailed and technical understanding of option pricing and hedging.  Participants should be proficient in basic to intermediate financial math (calculus not required) and the use of financial calculators. 

PARTICIPANT OBJECTIVES 

As a result of this workshop, participants will: 

·         Understand the underlying stochastic processes that drive modern derivatives pricing models and risk management processes.

·         Learn how to price and hedge foreign exchange, interest rate, equity, and commodity derivatives, including forwards, swaps, and options.

·         Understand what happens in the “black boxes” that are used to price derivatives and learn how to spot intuitively errors and problems.

·         Become comfortable with the language of the latest technologies and models in derivatives pricing.

·         Develop experience building advanced models using various trees and simulation approaches.

·         Recognize and manage related risks, such as liquidity, counterparty credit, and model imprecision

·         Understand the importance of banks’ risk management policies and procedures  

METHODOLOGY 

This workshop is extremely intensive and is built around lectures, case studies, problems, group presentations, Excel worksheet computer exercises, and simulations.

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