Advanced Equity Derivatives

Transcription

1 Advanced Equity Derivatives This course can be presented in-houseor via webinar for you on a date of your choosing The Banking and Corporate Finance Training Specialist

2 Course Overview This programme has been designed to provide a thorough overview of equity derivatives products, pricing, risk management and applications. We will use real life case study examples to illustrate the techniques and strategies that are used by both buy side and sell side. Participants will require laptops with MS Excel for the exercises and case studies. Course Overview The broad objectives of the programme are: To provide a complete understanding of the properties and risk profiles of equity derivative products. To provide participants with a thorough understanding of the applications of equity derivatives so that they have the ability to advise their clients on strategies that may be used to meet specific investor requirements. To provide participants with a thorough understanding of pricing techniques used in equity derivatives. This will give participants a good understanding of whether prices quoted are fair. To provide participants with a thorough understanding of the risk management processes and techniques used in equity derivatives. This will allow participants to explain risk reward expectations to investors and better manage risks in their own portfolios. To provide participants with a thorough understanding of the trading and investment strategies and techniques used in equity derivatives. This will allow participants to match products to their market expectations and risk profiles. To explain to participants how collateral management works through the process of VaR, marking positions to market and margin management. This will give prime brokers a better understanding of the role of collateral in risk reduction. It will also allow fund managers to plan for future cash flow movements in their funds and keep liquidity requirements to a minimum. Course Content Content A short recap of the properties and risk/reward profiles of equity derivative products? Derivative Products Futures Stock Index Futures Single Stock Futures Options Single Name Stock Options Stock Index Options Path Dependent Options Warrants Swaps Equity Swaps Variance Swaps Exercise for Module 1 Participants will be asked to explain the properties and risk reward profiles of a series of equity derivative products.

3 Who might use equity derivatives and why? This module examines the uses of the products by both traditional fund managers and hedge funds. Derivative Products Stock index futures Used by traditional fund managers to hedge portfolio risk and change asset allocation Used by macro hedge funds to speculate on future value of the stock market Single Name Equity Options Used by both traditional fund managers, equity long shorts and hedge funds for: Hedging of risk Placing risk into a collar Yield enhancement Stock Index Options Used by both traditional fund managers and hedge funds for: Portfolio hedging Volatility trading Equity swaps Used by both traditional fund managers and hedge funds for: Portfolio hedging Equity pairs trading Exercise for Module 2 Participants will be provided with a series of market expectations and trade criteria and be asked to choose an equity derivative product to use, giving their reasons and expected outcomes over a range of asset prices at maturity. How are equity derivatives priced? This module examines pricing of the products. Futures contracts by a combination of Buying the underlying asset Financing the purchase of the underlying assets Receiving dividends on the underlying asset using a variant of Black-Scholes Pricing model which requires inputs for: Stock price Interest and dividend returns Stock price volatility Equity Swaps, by calculating the present value of the future cash flows from the underlying equity and the interest funding costs Exercise for Module 3 Participants will be provided with a set of market asset prices, interest rates, volatilities and dividend expectations and will be asked to price various products. For this exercise participants will be given a pricing model for options but will be expected to build their own pricing model for the Delta 1 products.

4 Day 2 How are equity derivatives risk managed? Equity Delta 1 instruments VaR Delta and gamma silos for underlying stock price risk Vega ladders for volatility risk Phi and rho for interest rate and dividend risk Theta for the impact of time decay Exercise for Module 4 Participants will be provided with a set of market asset prices, interest rates, volatilities and dividend expectations and will be asked to project the expected profit or loss (risk) for various products as a result of changes in market conditions. For this exercise participants will be given a risk analytics programme for options. For Delta 1 products they will expand the model that they built in Module 3 to incorporate what if scenario analysis. Trading Strategies. This module discusses how to choose a strategy to fit a market expectation. Equity delta 1 products Directional strategies Pairs trading long short Directional trading Volatility trading Spread trading Income enhancement Exercise for Module 5 Participants will be provided with a series of market expectations and trade criteria and be asked to choose a strategy to use, giving their reasons and expected outcomes over a range of asset prices at maturity. Life cycle of a trade and collateral management including examples of mark to market. This module provides an in-depth analysis of risk and collateral management to ensure that participants understand how risk is reduced. Trade execution Request for quote from the buy-side Price construction from the sell-side Mark to market for single stock and indices Changes in stock price Dividend income and financing cost (carry) Mark to market for futures and equity swaps Changes in stock price Dividend income and financing cost (carry) Changes in interest rates Passage of time Change in stock price Changes in volatility Changes in interest rates and dividend The passage of time

5 Exercise for Module 6 Participants will choose one of the strategies from Module 5 and calculate the VaR and initial collateral requirement and haircut and then execute the strategy. They will then mark the strategy to market and manage the collateral over these two marks. One of the marks will be for a profitable market movement and the other for a losing market movement. They will then close the trade out and calculate the final profit or loss and manage the close out of the strategy and the return of the collateral. E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact requirements. enquiries@redcliffetraining.co.uk +44 (0)