Course dates
Course overview
'Equity Derivatives and Structured Products' provides you with an in-depth understanding of equity derivative products and their applications in trading, hedging and portfolio management. You will be taught various equity derivative trading strategies and their application in a range of commonly used portfolio strategies.
You will leave the course with a solid understanding of costs and benefits in the use of options, simple option strategies and how options may be used by both traditional funds and hedge funds to tailor risk profiles to fit market views and expectations.
The operational mechanics as well as the pricing and risk characteristics will be examined. Later in the course, the focus will be on the creation and reverse engineering of equity structured products, and the motivations for their use in different market environments.
Summary of course content
- Synthetic equity products and strategies: futures, forwards, swaps, ETFs and securitised products
- Equity volatility and structuring volatility trading strategies
- The operational mechanics, pricing and risk characteristics of equity options
- Option pricing models for American and European style options
- Single stock and index options and their application in a range of commonly used portfolio strategies
- Advanced option, volatility trading and risk management strategies
- Pricing and analysis of exotic option structures and their trading and risk management applications
- Reverse engineering of equity structured products
- Structuring and pricing equity linked structured notes: reverse convertibles; bonus certificates; capital guaranteed structures
Methodology
The course is taught using a combination of classroom based lecture with individual and team based case studies, manual and computer based exercises.
Computer-based exercises
All delegates should bring their laptops to facilitate in-class studies and exercises.
Who should attend this training course?
- Members of derivative groups, treasury and capital markets organisations
- End users of derivatives in corporations or investment managers
- Support staff, consultants and advisers active in providing services to financial institutions
- End users of derivative products
Supporting publication
DAY ONE
Synthetic equity
Introduction to equity derivative products and their applications in trading, hedging and portfolio management. The focus will be on synthetic equity or Delta 1.0 products - futures, forwards, swaps, ETFs and securitised products.
- Key drivers of synthetic equity usage
- Industry trends
- Regulatory environment
- Attractions of synthetic equity in portfolio management
- Access
- Enhanced yield and return
- Increased alpha availability
- Pricing: cash vs. futures fair value
- Risks: delta and basis risks
- Products
- Futures and forwards
- Swaps
- ETFs
- Securitised products
Case study: synthetic equity strategies; pricing a securitised discount certificate
Equity volatility
In-depth examination of the most important aspects surrounding equity volatility. The session will explain why volatility is relevant, will look at the major interpretations of volatility, and will examine various volatility trading strategies.
- Estimating and forecasting volatility
- Interpretation of historic, realised and implied volatility
- Measuring volatility exposure
- Volatility (Vega, Gamma) trading strategies
- Volatility skew patterns
- Model limitations
- Leverage and balance sheet risk
- Supply and demand
- Term structure effects
- Trading volatility via options
- Volatility and variance swaps
Case study: estimation of volatility; structuring volatility trading strategies
DAY TWO
Option basics
Examination of equity options, both listed and OTC, for index and single stock names. The focus is on their operational mechanics, pricing, risk characteristics and application in a range of commonly used portfolio strategies.
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Option terminologies, styles and markets
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Pay-off profiles and their interpretations
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Intrinsic value and time value
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Practical considerations
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Liquidity constraints
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Client orders
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Put-call parity: option combinations and synthetic forwards
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Option valuation
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Black-Scholes
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Binomial modelling
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Option risks
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Spot/Forward risk
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Delta
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Gamma
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Theta
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Vega
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Practical considerations and liquidity constraints
Case study: constructing simple option pricing models for European and American style options; option combinations and put-call parity
Common option strategies
The application of single stock and index options in a range of commonly used portfolio strategies. Key objectives are to equip participants with a solid basis of understanding of the costs and benefits in the use of options and simple option strategies and how options may be used by both traditional 'long only' funds and hedge funds to tailor risk profiles to more closely fit market views and expectations.
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Yield enhancement strategies
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Covered calls
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Under-writing via puts
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Creation of leverage
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ATM and OTM options
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Cash extraction
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Option spreads and combinations
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Portfolio hedging techniques
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Puts and put spreads
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Collars
Case study: implementing a range of simple option trading and risk management strategies
DAY THREE
Advanced option strategies
This section examines some of the more advanced option and volatility strategies used by both long-only funds and hedge funds in the recent past. These strategies are typically customised to suit a combination of different trading ideas or requirements, and they include a variety of risk factors.
Case study: pricing and analysis of exotic option structures; trading and risk management applications
Equity structured products
This section provides participants with an analysis of equity structured products. Content will focus on the creation and reverse engineering of equity structured products, and the reasons for their use in different market environments.
- Rationale for investors and issuers
- Building blocks
- Structure design and creation
- Pricing and valuation (reverse engineering)
- Risk and return characteristics
- Main product types
- Delta 1 structures
- Discount certificates and reverse convertibles
- Bonus certificates
- Capital guaranteed products
- Basket options
- Structures on non-optionable assets
- CPPI
- Volatility and correlation products
- TARN structures
- Hybrid products
Case study: structuring and pricing a range of equity linked structured notes: reverse convertibles; bonus certificates; capital guaranteed structures
InterContinental Grand Stanford Hotel, Hong Kong, Hong Kong
This programme takes place on a non-residential basis at the InterContinental Grand Stanford Hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.
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Graham Dudlyke
Graham Dudlyke is a highly experienced derivatives consultant who has held senior positions in a number of major financial institutions in London and New York. As Vice President of the Arbitrage Trading Group at Chemical Bank, Graham was responsible for management and marketing of interest rate option trading, managing a portfolio of interest rate caps, floors and swap options. As an Associate Director of Mitsubishi Finance, London, he gained considerable experience in trading portfolios of swaps and options, and in risk management and financial engineering, including structuring new issues of debt and creating structured assets.
As Manager of SE Banken's Global Derivatives Trading Group, he held overall responsibility for swaps, options and fixed income portfolio trading and risk management, new product development, and corporate and institutional marketing of structured debt products. Graham lectures internationally on all aspects of derivatives and fixed income and is highly respected for his practical market approach to product structuring and applications. Graham holds an MBA from Imperial College, London and an MA in Chemistry from Oxford University.
Courses run by this instructor
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Course dates