User Login

Error
Home Courses Course Calendar Teaching Team About Us Resources Contact
Close
Course Calendar Course Calendar

Equity Derivatives 1: Dividends, Swaps and Options

Day One

Equity Markets: Indices, Dividends, Forwards, Repo and Stock Loan

  • Corporate structure and types of equity
  • Equity indices: price and capitalisation weightings
  • Lifecycle and type of dividend payment
  • Dividends and tax
  • Mechanics of stock lending
  • Uses of stock loan – fee income and arbitrage strategies
  • Equity Repos
  • Introduction to an equity forward
  • Non-arbitrage pricing of an equity forward
  • Discounting and choosing a yield curve – Eonia or Euribor
  • Differences between futures and forwards and the impact of uncertain rates
  • Forecasting dividends – fixed amount or proportional dividends
  • Using futures to short the market
  • Futures and tactical asset allocation

Exercise: Building a forward curve, studying the impact of corporate actions on index dividends

Equity and Dividend Swaps

  • Timing of resets and cashflows for an equity swap
  • Valuing an equity swap using discounting
  • Exotic swap types – variable notional, quanto, index vs. index
  • Motivations and players in the market
  • Using equity swaps for dividend taxation arbitrage
  • Trading the equity repo
  • Using an equity swap in mergers and acquisitions
  • Diversifying cross holdings
  • Overlay strategies for asset managers

Exercise: Corporate use of an equity swap


Day Two

Advanced Issues in Equity Swaps

  • Collateral and credit risk
  • Central clearing and trading with a CSA
  • Role of CVA in swap pricing
  • Introduction to the dividend swap contract
  • Comparing dividend swaps and dividend futures
  • Trading dividends as an asset class
  • Impact of the structured product market on dividend swaps
  • Hedge fund strategies with dividend swaps

Exercise: Trading opportunities with a dividend swap

Equity Options

  • Option definitions
  • European and American options
  • Trading on an exchange versus OTC
  • Put / call parity for European options
  • Index and basket options
  • When to exercise American style options
  • Portfolio protection – put, put spread, collar
  • Directional views – call, call spread
  • Buying the underlying vs. buying a call option
  • Range bound strategies – straddles and strangles
  • Yield enhancement – call overwriting
  • Corporate Treasury – structured acquisition and disposal using options

Exercise: Protecting a portfolio against downside risk with options


Day Three

Essentials of Option Pricing

  • Pricing options by replication
  • Black-Scholes assumptions on asset price movements
  • Geometric Brownian motion and standard option valuation
  • Hedging and risk neutrality
  • Including dividends in price dynamics
  • Sensitivities and the greeks
  • Impact of dividend choices on risk measures (fixed cash, proportional and hybrid dividend assumptions)
  • Hedging costs vs. time decay (the relationship between theta and gamma)
  • Using trees to price American options
  • Problems of combining dividends into American option pricing
  • Causes and impact of volatility smiles

Exercise: Investigation of risk sensitivities for American and European options

Trading Volatility with Options

  • Implied vs. historic volatility
  • Options on illiquid assets or large size
  • Extreme event risk, volatility skew and smile
  • Pricing the chance of a payoff
  • “Zero cost” and “Pay later” strategies
  • Simple volatility trades
  • Taking positions and skew and smile
  • Introduction to a variance swap contract
  • Trading with volatility indices

Exercise: Trading and hedging volatility



Keep me updated about this course

Submit