Understanding Derivatives

This programme is only available on in-company basis. Please, contact us for more information

Course Description

This programme is now available only on in-company basis. If you have a group of 3 or more we can deliver it in any location worldwide. Contact us to find out more. 

Check here the list of our upcoming open public courses.

This highly practical 2 day course conducted by a former City trader and derivatives specialist focuses on explaining different types of derivatives, their characteristics, pricing strategies and use by various market players.

You will learn about the ‘delta-1’ products which include: forwards, futures, swaps and options and explore option valuation and risk measurement techniques.

During the second day you will learn more in depth about some well-known option pricing models: The Cox, Ross, Rubenstein Binomial Model (1979) is an intuitive model that tries to explain the Black-Scholes model (1973). Both models will be explained using modern precise language rather than the usual 1970’s textbook one. Finally, you will learn about structured products to use in both vanilla and exotic building blocks.

What Will You Learn

 By the end of this training you will:

  • Gain a sound practical understanding of the derivatives instruments
  • Know the fundamental applications of swaps, forwards, futures and options 
  • Be able to use relevant pricing strategy 
  • Calculate risk and return measures
  • Construct a pay/off profile of different options
  • Understand trading and hedging techniques for options

Main Topics Covered During This Training

  • Delta 1 products: forwards, futures and swaps - market characteristics vs underlying assets
  • Forward pricing
  • Options and components for calculating options value
  • The Greeks: Option Risk Measures
  • Interest Rate Swaps & Swaptions
  • Interest Rate Caps & Floors
  • Risk-neutral pricing models
  • Black-Scholes formulae and pricing screens
  • Exotics 
  • Structured products and building blocks

Who Should Attend

From Investment Banks, Corporates and other financial institutions - Managers and Professionals from the following departments:

  • Risk Management
  • Interest Rate Analysts, Sales and Traders
  • Currency Analysts, Sales and Traders
  • Auditors
  • Financial Analysts
  • Portfolio Managers
  • Treasury Managers

And anyone who needs to understand better derivatives products. 

In-Company, call us for more information


Forwards, Futures

  •  Risk characteristics vs. underlying assets (equity, bond, commodities,   Hedging
  •  Cash or physical settlement
  •  Comparison to forward contracts
  •  Marking-to-market 
  •  Index futures


Forward Pricing

  •  Spot-forward arbitrage-free pricing
  •  Where arbitrage-free pricing falls down 
  •  Trade cashflows



Brief review of Equity swaps, Dividend Swaps, Variance Swaps, Interest rate Swaps and Credit Default Swaps


Introduction to Options and Components of Option Value

  •  Basic definitions and risk profiles
  •  The language in an option contract
  •  Hedging
  •  What happens at expiry?
  •  ’Moneyness’ before expiry
  •  ’Forward value’ and ‘uncertainty value’
  •  Does selling options naked sound like a good idea?  Arbitrage-free  relationships (put-call-parity)
  •  Theoretical valuation
  •  Introduction to a basic probability distribution
  •  Calculating option values based on expected values 


Option Risk Measures (“The Greeks”)

  •  The options dashboard
  •  Delta – what is hedging all about?
  •  Is Delta a hedge-ratio, a probability, a sensitivity ratio, calculus?
  •  Vega – what is my exposure to the ‘vol markets’?
  •  Theta – options are a decaying asset and this costs the trader
  •  Gamma – is it a win-win situation?
  •  Busting curve whilst dynamically hedging (in English: how option traders  make money)


Interest Rate Swaps & Swaptions

  •  Terms and mechanics of swaps
  •  Uses of swaps
  •  Swaps as a series of FRAs
  •  Swap valuation & swap risk / PVBP
  •  Forward starting swaps Cashflows and pricing  Swaptions


Interest Rate Caps & Floors

  •  Definition of caps & floors
  •  Hedging
  •  Cap-floor parity and relationship to swaptions




Risk-neutral pricing models

  • Does option valuation require probabilities?
  • Risk-neutral valuation and risk-neutral portfolios
  • Cashlows on a hedged option trade; costs and benefits 
  • Being continuously lognormal
  • Black-Scholes formulae and pricing screens
  • Applying the formula
  • Understanding the elements of the formula
  • The ‘0.4 rule’ – pricing options in your head
  • Correcting myths about delta: N(d1) and 50-delta options 


Black-Scholes formulae and pricing screens

  • Applying the formula 
  • Understanding the elements of the formula 
  • Pricing options in your head
  • Calculating option greeks in your head
  • Why isn’t a deep-in option delta 1?
  • Why aren’t at-the-money options 50-delta?



  • Binary/ digital/ bet options – are these the fundamental sub-particle?
  • Replication and greeks
  • Range payouts
  • One-touch options and other barriers
  • Always buying low, selling high, without emotion, putting someone else’s money where your mouth is AND still being allowed to admit it when you are wrong!
  • Asians/ Forward-starts/ Cliquets/ Mutli-asset/ Cross/ Quanto


Structured Products

  • Basic building blocks; stocks and bonds
  • Convertible bonds are structured products? 
  • Greedy, cheap and scared investors
  • Protected notes (ProNote®)
  • Yield enhancement products (‘revertible’) 

Spencer brings to the classroom 20 years of experience in finance, 16 in banking including 6 plus years working directly on equity and interest rates trading floors. He has a speciality in teaching the O’Connors Derivatives programs, still regarded as the ‘badge’ for option traders at UBS. He also has a speciality in teaching accounting, valuation and modelling having developed these alongside UBS research and having professionally trained as a chartered accountant.

He delivers training in a wide range of financial products and enjoys teaching complicated topics in an easy to understand way relating topics to day-to-day life. 

Spencer has an entertaining and lively style – which has proven to be an effective delivery method. He believes that teaching is something to be enjoyed rather than endured.

Spencer’s career has most recently included being the executive director of Financial Markets and Risk Education at UBS, a floor-based client trainer at Credit Suisse, a UBS Financial Markets Trainer, Exotics and Structured Products specialist (Equities and Rates) at UBS, Derivatives Products Controller at Nomura Options International and Auditor at Arthur Andersen. 

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