Understanding Derivatives

Course description

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.

Understanding Derivatives - 2 Day Training Course

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

Swaps

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

DAY 2

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?

Exotics

  • 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’)
  • ARESSM/BARESSM/EPSSM

 

Trainer

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.

 

FAQ

We offer banking and finance courses as well as soft skills and business management training. You can either attend an open public course in London or Dubai or arrange customised in-house training to be delivered in any of your offices worldwide.

Most of our public courses are run over 2 full days. Some programmes are offered as a 1 or 3 day training.

In-house training is tailored to client’s requirements and can be organised over 1 day, 2-3 weeks or longer.

Public courses are organised mainly in London and Dubai. Occasionally we organise courses in other centres like Paris or New York. Check our public course calendar for the current list of programmes. We use a range of training venues, all in the centre of the cities and with excellent transport links to the airports and train stations.

In London we use venues in the centre (near Oxford Circus station or in Mayfair) or in the City (near Liverpool Street or Moorgate stations).

In Dubai our courses are organised in one of 4-5* hotels in the Deira district. Once you register we will send you detailed information together with accommodation options if required.

Our in-house courses can be delivered anywhere in the world. We work with over 25 trainers worldwide. Contact us do discuss your requirements. Check our list of available programmes.

Our courses are run in central locations from 9 a.m until 5-5.30 p.m. There are 2 coffee breaks and a lunch break. Lunch is always provided in the venue.

Dress code is smart casual.

All our programmes are taught by senior specialists who have spent many years in their respective sectors, working as senior managers and head of departments, so they understand very well the market and the challenges you are facing.

The experience of our trainers allows us to create very practical programmes, focused on current market trends and challenges. You can be sure that you will gain the knowledge which can be instantly applied in your workplace after the course. You will be analysing real life case studies, take part in group exercises and discussions as well as role plays, whenever applicable.

We want our courses to be as practical and interactive as possible so we limit the number of participants in order to optimise your time with the trainer and allow you to ask questions which are important for you.

In order to understand your requirements and expectations, we will send you a pre-course questionnaire.

You will also receive post-course support so if you have any questions after you left the training, you are welcome to contact us.

There are 2 easy ways to register:

  1. Go to the course of your choice and click Register Now button to fill the registration page
  2. Email us to enquiry@eurekafinancial.com

After you register, we will send you registration confirmation and an invoice so you can arrange the payment. Please note that your place is not confirmed until we receive it.

If you register within Early Bird discount period, there’s limited time to arrange the payment in order to be eligible for the discount. You will find all the details on the invoice.

We don’t advise to make any travel and hotel arrangements until you receive full course confirmation from us.

We will send you venue and course details as soon as possible but most likely about 3-4 weeks prior to the course commencement.

You can pay by:

  • Making a bank transfer
  • Debit/credit card
  • Cheque payable to Eureka Financial Ltd. - only within UK

Just mark preferred paying option on the registration form. Whichever form of payment you choose we will always send you an invoice.

If you pay by card, a 2.2% processing fee will be added. We will send you authorisation form so you can give us your card details.

Included in the price of a public course are:

  • Course tutorial
  • Take away course materials
  • Course Certificate
  • Lunch on the days of the training as well as drinks and snacks throughout the course

The price doesn’t include accommodation, flights, transfers and any additional costs outside of the training venue.

Yes, we always offer Early Bird discount, so the sooner you register the more savings you can make. We also offer group discounts and if you register for 2 or more programmes at the same time.

If you are a full time student or unemployed, we offer a 25% discount of the full price of the training. Student ID or unemployment status confirmation is required to claim this discount.

If you attend one of our courses you will be entitled to a special discount for a year after the last course you attend with us. Also, if you have attended and recommended us to a friend, both you and your friend will receive a special discount. You will receive more information about it after you attend the course.

See our Customer Loyalty Discounts page for more details.

All our courses based in the UK are subject to the VAT charge of 20%. This fee is irrespective of the country of residence of the delegates.

You can, however, claim the VAT back by contacting UK tax office - HMRC, and filling the relevant form, as long as you comply with the following rules:

For Delegates coming from the EU countries

If you represent a registered business in another EU country, you can use the Refund Scheme to reclaim VAT you pay in the UK as long as all of the following apply:

  • You're not registered for VAT in the UK and don't have to, or can't be, registered here
  • You don't have a place of business or a residence in the UK
  • You don't make any supplies in the UK

You can find some more information here. In order to claim the VAT you have to fill Form 65.

For the Delegates from Non EU countries

If you represent a registered business in a non-EU country, you can use the Refund Scheme to reclaim VAT you pay in the UK as long as all of the following apply:

  • You're not registered for VAT in the UK and don't have to, or can't be, registered here
  • You don't have a place of business or a residence in the EU
  • You can only use the Refund Scheme if your own country operates a similar scheme and makes it available to UK businesses. If your country has its own Refund Scheme but doesn't let UK businesses use it, you can't claim under the UK Refund Scheme.
  • You don't make any supplies in the UK

If the following rules apply to you, please fill the 65A form and send it to HMRC.

If you are unable to attend the course, you can either send a replacement at no extra charge or, up to 20 working days before the training, you can transfer your booking to another course within the next 6 months for an additional fee of 25% of the full course value. Please note that you can only transfer once.

Alternatively, for cancellations requests received more than 20 working days before the course date we will offer a refund less an administration fee of 10% of the course price.

We regret that no refunds can be given after this period. Non-attendance without any notification will be charged at full rate.

Cancellations must be made in writing and reach our office 20 working days prior to the course date.

Your place on a course is not guaranteed until we receive the payment. All payments must be made in full before the course date.

All our trainers have been working for many years in their respective sectors before they begun to teach so they bring a wealth of practical experience to the classroom.

Most of them used to work for 15 or more years in the financial sector and corporate world, and were holding positions of Directors, VP and Senior Managers. Some of them have published books and have written articles for specialised magazines and newspapers including FT, The Independent, The Times etc. You can find detailed biography of each trainer on the page of the course you want to register for.

Yes, you will receive a Certificate of Attendance at the end of the course you attend.

If you have to apply for a Visa to attend a course in the UK, we will issue a letter to support your application. The letter will be issued only after the payment for the course has been made.

It is delegate’s responsibility to obtain a Visa and failure to do so will not make the participant exempt from the cancellation policy.

Anyone suspected of applying for a training course simply to gain a Visa letter will be reported to their embassy.

We will need the following information to issue an invitation letter:

  • Full name as it appears on your passport
  • Date of birth
  • Passport number
  • Passport issue date
  • Passport expiry date

This topic can be arranged on in-company basis. If you have a group of 4 or more we can customise it and deliver in any location worldwide. Contact us to discuss your requirements

WHAT PAST DELEGATES SAY

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