Equity Derivatives: Advanced Models

Equity Derivatives: Advanced Models

EQUITY DERIVATIVES: Advanced Models
Course Outline:
This course introduces and applies advanced models for the pricing of equity derivatives. The objective of the workshop is to develop a solid understanding of the current frameworks for pricing equity derivatives and to give participants the mathematical and practical background necessary to apply the various pricing methodologies to the market. All delegates will receive a copy of Schoutens's book, Lévy Processes in Finance: Pricing Financial Derivatives

Who The Course is For:
Quantitative analysts Risk managers Fund managers Financial engineers Researchers Credit managers Accountants Corporate and financial consultants Treasury managers Portfolio managers Venture Capital executives  

Prior Knowledge:
Probability theory, basics of stochastic processes, basic concepts of financial products, bionomial tree modelling and the Black-Scholes setting, a good maths background and knowledge of basic maths models, knowledge of basic programming. 
Course Programme*
Day One
Equity Models

Description, construction and analysis of some of the popular advanced mathematical models for the pricing of financial derivatives in an equity setting.

Shortfalls of the Black-Scholes Model

Problems with the Normal Distribution
The need for stochastic volatility
Implied volatility
Stylised features of financial returns

An Introduction to Lévy Processes

Definitions
Lévy-Kinthchin representation
Properties
Examples

Jump Models

Lévy models
Variance Gamma model
Risk-neutral modelling - equivalent martingale measures
Extensions of the VG model

Workshop: PC-based implementation of the VG model (Matlab)
Day Two
Stochastic Volatility


Stylised features of volatility
Heston model
Heston with jumps
Lévy models with stochastic volatility

Pricing European Options using Characteristic Functions


Characteristic functions
Carr-Madan formula for European options
FFT techniques
Characteristic function technique for other payoffs

Calibration


Basic concepts of calibration
Search algorithm
Choosing starting values
Examples

Workshop: PC-based implementation of FFT pricing and calibration algorithm (Matlab)
Day Three
Monte Carlo Simulations: Theory


Standard sampling of Heston paths
Standard sampling VG paths
Advanced sampling methods: Milstein's scheme
Sampling Lévy processes with stochastic volatility paths

Exotic Option Pricing


Pricing European options using Monte Carlo simulation

Workshop: PC-based implementation of Monte Carlo Simulations and Exotic Option pricing (Matlab): Pricing of Barriers, Cliquets, reverse Cliquets, Asians
At the end of the course delegates should have running on their machines (Matlab):

FFT pricer for vanillas for VG and/or Heston
Calibration algorithm for VG and/or Heston
Monte Carlo Pricers for VG and/or Heston for a range of exotic options


* Subject to change. Please contact centre for more information.

 This program is eligible for 24 Continuing Education credit hours from the CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.