Euromoney Audit Training

Course overview

'Equity Derivatives and Structured Products' provides delegates with an in-depth understanding of equity derivative products and their applications in trading, hedging and portfolio management.

Delegates will be taught various equity derivative trading strategies and their application in a range of commonly used portfolio strategies.

They 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.

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.

Throughout the course delegates will develop an understanding of the most important aspects surrounding equity derivatives. The operational mechanics as well as the pricing and risk characteristics will be
examined.

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 publications

   

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.

• Option terminologies, styles and markets
• Pay-off profiles and their interpretations
• Intrinsic value and time value
• Practical considerations
• Liquidity constraints
• Client orders
• Put-call parity: option combinations and synthetic forwards
• Option valuation
• Black-Scholes
• Binomial modelling
• Option risks
• Spot/Forward risk
• Delta
• Gamma
• Theta
• Vega
• 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.

• Yield enhancement strategies
• Covered calls
• Under-writing via puts
• Creation of leverage
• ATM and OTM options
• Cash extraction
• Option spreads and combinations
• Vertical and calendar spreads
• Risk reversals
• Portfolio hedging techniques
• Puts and put spreads
• 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.

• Correlation embedded strategies
• Spread and out-performance options
• Best-of and worst-of structures
• Correlation swaps
• Dispersion trades
• Advanced volatility strategies
• Conditional variance swaps
• Options on variance
• Gamma swaps
• Exotic options
• Knock-in and knock-out options
• Quanto options
• Asian averaging

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

• 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

  • Options Trading Workshop
  • Options Trading Module 2: 'Exotic Options'
  • Options Trading: Module 1 'Options'

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

Advanced Swaps

17-20 Apr 2012 (Hong Kong, Hong Kong)
9-12 Oct 2012 (Singapore, Singapore)

By the end of 2010, the size of the global swap market was in excess of USD500 trillion (in terms of notional principal), made up predominantly of interest rate swaps. Despite the recent banking crisis, with the exception of credit default swaps, the market had recovered its growth. Why? Because organisations continue to use swaps to manage their exposures to the financial markets, such as interest and FX rates, equity and commodity, inflation, volatility, credit, etc. During this time, the swap market has evolved to provide a wide range of innovative structures designed to meet the precise requirements of end-users.

Options Trading Workshop

2-6 Jul 2012 (Hong Kong, Hong Kong)

The Modular based Options Trading Workshop ' provides a comprehensive and detailed analysis of options looking at pricing, risk characteristics, and their dynamic behaviour in the context of the management of a portfolio of options.

Commodity Markets, Derivatives and Finance

17-20 Apr 2012 (Singapore, Singapore)
9-12 Oct 2012 (Hong Kong, Hong Kong)

A comprehensive four-day training course covering the most important aspects of commodity markets, related derivatives and financing structures

Derivatives Workshop

25-29 Jun 2012 (Singapore, Singapore)
10-14 Dec 2012 (Hong Kong, Hong Kong)

'Derivatives Workshop' is designed to provide delegates with a thorough understanding of the derivatives market place for both OTC and exchange-traded instruments, in particular how derivatives are used on a day-to-day basis to manage both exposures and to provide customer based solutions.

Interest Rate Derivatives and Currency Swaps

10-13 Sep 2012 (Hong Kong, Hong Kong)

A comprehensive guide to the latest practical and theoretical developments in the structuring, pricing and hedging of OTC derivatives

Options Trading: Module 1 'Options'

2-4 Jul 2012 (Hong Kong, Hong Kong)

This Module addresses vanilla options, and through a combination of classroom-based teaching combined with computer-based simulations and exercises, offers a thorough and practical understanding of option pricing and risks, and how options can be used in directional and nondirectional strategies, together with their dynamic hedging implications.

Options Trading Module 2: 'Exotic Options'

5-6 Jul 2012 (Hong Kong, Hong Kong)

This Module looks at exotic options and will provide a similar perspective on their pricing and risk characteristics, in order to understand the motivations and rationale for their usage in a variety of different hedging and trading applications.