Equity Derivatives: Valuation And Management
EQUITY DERIVATIVES: Advanced Models
Course Outline:
Equity derivatives have been growing in importance over a number of years and are now well established in the financial marketplace. This seminar is for anyone who wishes to be able to price, use, manage or evaluate equity derivatives and exotic equity options. More than half of the seminar is devoted to practical small group sessions.
Who The Course is For:
Anyone who wishes to be able to price, use, manage, or evaluate equity derivatives and exotic equity options. Past participants have included: Traders, Loan Officers, Risk Managers, Fixed Income Professionals & Sales People, Fund Managers, Investors, Middle Office Managers, Senior Managers, Quantitative Analysts, Structured Products Desks, Researchers, Financial Engineers, Compliance Staff, Auditors, Dealing Room Staff, Systems Developers, Product Controllers, Loan Portfolio Managers, Credit Analysis, Credit Risk Managers
Prior Knowledge: A basic understanding of the cash equity markets and the fundamentals of the time value of money is assumed. A minimal level of Excel experience, while not necessary will be useful.
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 consult 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.
