Derivatives School: M1 - Fundamentals of Derivatives

Course overview Module 1: Fundamentals of Derivatives (Day 1 - Day 3) is a comprehensive overview of the major classes of derivatives, distinguishing between linear and non-linear derivatives. Summary of course content How and why are derivatives used in practice? The difference between exchange-traded and OTC derivatives? Clearing procedures for exchange-traded derivatives Understanding the principal money market derivatives and how they are used to manage interest rate risk Swaps and how banks and other institutions use them Prima on options and their application in the management of FX risk How derivatives are embedded in common structures to provide investors with attractive risk/reward profiles Methodology This modular course uses interactive lectures, worked examples and real-world case studies showing in detail how the products are used and why. It shows the products in a highly practical way, without over-complication, with clear illustrations of each so that you may readily understand them and the role the bank plays. Who should attend? The Derivative School is beneficial to professionals at all levels who require a thorough understanding of derivatives and their practical applications. You can attend the comprehensive Derivatives School which runs from 1-5 December 2014 or pick from the following modules. Module 1: Fundamentals of Derivatives 1-3 December 2014, Hong Kong Module 2: Bank Applications of Derivatives 4-5 December 2014, Hong Kong Save US$1,690 for registering both modules on 1-5 December 2014!
Module 1: Fundamentals of Derivatives Day 1 Introduction to derivatives and derivative types Introduction to derivatives What is a derivative? The equity CFD market explained Why is there a market for derivatives? Attributes of derivatives Practical uses of derivatives Leveraged trading Risk management applications Creating synthetic positions Advantages of derivative instruments over cash instruments The trading, dealing and clearing environment OTC vs. Exchange traded products Recent developments Broking vs. Market making Trade execution Order vs. Quote driven markets Market order types Placing orders in an electronic trading platform Calculating the P & L on a futures contract Understanding the Clearing House guarantee and margining system for exchange traded instruments Case study: Delegates will complete a margining return over a period of time for a small portfolio Linear derivatives: Money market derivatives Concept of a forward contract Forward interest rates Forward rate agreements (FRA’s) Locking-in a forward interest rate Exchange traded version: Short-term interest rate (STIR) futures contracts Case study: Delegates will complete a number of exercises based on FRA’s and STIR’s Day 2 Swaps Multi-period linear interest rate derivatives: Swaps The interest rate swap (IRS) market Types of swap Interest rate swaps Currency swaps Understanding the credit risk in swaps Relationship between swaps and forwards Market structure Inter-bank vs. Customer market Broker quotes in the inter-bank market Why the market exists: Reducing funding costs by using swaps Applications of swaps Case Study: Delegates will derive the market swap bid and offer rates consistent with the actual and target borrow rates of two institutions A framework for marking-to-market OTC derivative positions Building the discount function What instruments to use "Bootstrapping" the swaps curve Case study: Using the bootstrapping approach, delegates will derive the interbank discount function Marking-to-market interest rate and currency swaps Identifying the cash flows Representing the floating cash flows as notional cash flows Extending the principle: Pricing a deferred start swap Marking-to-market a currency rate swap Case study: Using the discount function derived earlier, delegates will mark-to-market a number of swap positions Day 3 Introduction to options An options primer What is an option? Option terminology Exercise types Option "moneyness" Intrinsic vs. Time value Understanding the payoff profiles Trading and hedging strategies with equity options Understanding how to construct payoff profiles for combinations of options and the underlying Understanding the relationship between puts and call Identifying common directional and volatility trading strategies Hedging with options Case study: Delegates will draw the payoff profiles of a number of trading strategies Introduction to option pricing and risk measures The importance of correct valuation What drives the price of the option: Understanding the model inputs Approaches to option valuation: Hedge approach vs. Probabilistic approach Breaking-down the Black Scholes option pricing model Option risk measures: The "Greeks" Case study: Delegates will use the option Greeks to estimate the new price following a change in market variables