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Option Hedging Simulation

Day One

Hedging Cost

  • Forwards
  • Put Call Parity
  • Binomial Tree model
  • Black-Scholes-Merton model

Delta Hedging

  • Volatility
  • Several angles at delta hedging

Simulation: Delta hedging, P&L distribution and hedging balance

Greeks

  • Option Price dynamics
  • Greek shapes
  • Hedging volatility
  • Trading the Black-Scholes assumptions

Simulation: Risk management of options - Short-dated options, Long-dated options and P&L explained


Day Two

Portfolio Management

  • Greek sensitivity of a derivative
  • Portfolio Greeks
  • Vega matrix
  • Portfolio effects

Simulation:  Portfolio hedging - Delta-Vega hedging, Delta-vega-gamma-theta hedging and Portfolio stability of exotics

Volatility Term Structure

  • Time-dependent volatility 
  • Greeks revisited
  • Market term structure and non-arbitrage

Workshop:  Hedging under term structure

Skew and Smile

  • Volatility surface
  • Market skew and dynamics

Workshop:  Become an option market maker and set your own skew

 



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