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Equity Structured Products: Design, Pricing and Implementation

Day One

The Basics of Option Pricing

  • Options and Forwards
  • The basic principles of option pricing
  • Black and Scholes
  • Implied volatility
  • Exotic derivatives
  • Dividends and Dividend Swaps

Basic Structured Products

  • What are Structured Products?
  • Comparison of Structured Products with traditional instruments
  • Advantages of using Structured Products
  • Principal protection vs principal at Risk
  • Reverse Convertibles
  • Bonus Certificates
  • Range Accrual
  • Path dependent structures
    • Barriers
    • Lock-In
    • Cliquet
    • Lookback - Hi Score
    • Power
    • Twin-Twin
  • Auto cancellable options
  • Equity Default Swaps

Workshop (Excel): Design of a Principal protected Notes and Reverse Convertibles


Day Two

Valuation of Derivatives and Structured Products

  • Black and Scholes
  • Smile conform pricing: towards jump models and stochastic Volatility Models
  • Detailing Heston Volatility Model
  • Vanilla Pricing under Heston Model
  • Calibrating the model
  • Monte Carlo pricing
  • Introduction to basic variance reduction techniques
  • Examples of how MC can be used to value and manage a range of path dependent exotic options

Workshop: MC pricing under Heston

Hedging and Risk Management of Structured Products

  • Delta Hedging
  • The consequences of delta hedging (what happens when the stock is illiquid)
  • Static Hedging
  • The Greeks: delta - gamma - theta -vega
  • Volatility and the gamma-theta trade off

Workshop: Hedging Digital Options


Day Three

Correlation products

  • What is correlation?
  • What causes correlation?
  • Dispersion trades
  • Examples of correlation dependent exotic options
  • Call on a basket of stocks or indices
  • Worst of/ best of call options
  • Barriers on worst and best of calls

Workshop: Design and MC pricing of Basket Products

Some products that went completely wrong and why

  • Structured Credit Risk Products
  • CPPI
  • CPDO
  • Gap risk

New trends in products

  • Gap risk
  • Hybrid products
  • Volatility Derivatives
  • Structured Credit Risk Products

Conclusion, discussion, open questions



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