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About the course
Understand Options and Structured Products and their applications with this 2 day course
This course forms module two of the 5 day School of Derivatives programme being run in Singapore
Module 1: Non-option Derivatives Products (Days 1-3)
Module 2: Options & Structured Products (Days 4-5)
Options & Structured Products
This module will provide detailed analysis of the financial risks and trading strategies of options as well as some commonly traded structured products. The asset classes covered will be FX and equity.
Excel spreadsheets with a built-in Black Scholes model will be used extensively to illustrate the key risk management concepts. The emphasis will be on using the models to gain a practical understanding of option pricing and risk management but not on the mathematics behind the models. No advanced level mathematics is required for this module.
As well as outlining how to use options for hedging purposes, this course will present common option trading strategies adopted by professional players.
Some commonly traded structured products in both retail and financial institutional sectors will also be explored. Participants will examine, from first principles, how to construct, price and risk manage some common structures. In the case of more complex structures, the focus will be to develop an intuitive understanding of the product and the inherent risks, including those that are not hedgeable, to which the investors and the structuring banks are exposed.
The School uses interactive lectures, worked examples and real-world case studies showing how the products are used and the underlying rationale. Participants will be expected to work on a large number of case studies to enhance the learning process.
Module 2: Options & Structured Products
Overview of options terminology
- intuitive understanding of option pricing
- overview of types of option pricing models
Major inputs to an option pricing model
- understanding implied volatility
- volatility smile and its implications
- hedging strategies for clients using FX options
Option sensitivities: the Greeks
- understanding each Greek and its practical usage in risk management
option portfolio risk management
The concept of gamma trading
Case studies for Day 4
- Pricing and setting up a zero cost hedging solution, taking into account the volatility skew
- Computing and managing the Greeks of an option portfolio
- Working out gamma trading P&L from a straddle through simulated price changes over a trading horizon
Option trading strategies from retail players to professional traders
- directional and non-directional views on the underlying asset
- spread trades as a cheaper trading strategy
- taking views on volatility
- trading volatility skew/smile
Overview of structured product market
- various risk vs return profiles
- market trend after the financial crisis
Common exotic options
- digitals options and its detailed construction
- barriers options
- Asian options and others
- ease of marketing vs difficulty in risk management to the structuring banks
Relatively simple structures
- dual currency deposits
- equity-linked notes (ELN)
- principal protected notes (PPN) with different variations to fit clients’ views
More complicated structures
- range accruals and their decomposition into basic building blocks
- target redemption structures
Case studies for Day 5
- Termsheets of recent structured transactions
- Setting up a PPN
Trust the experts
Goliath Lau has over 13 years of trading experience in the financial derivatives industry. After a brief period as an officer in the back office, he became a HKD and USD interest rate derivatives and government bond trader at HSBC Hong Kong in 1995. As a market maker of HKD interest rate derivati...