Equity Derivatives 1: Trading and Managing Vanilla Options
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The course material and the coach were fabulous. I can prescribe this course to any quants.
← | →
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This course is very much organized and nicely exhibited. There was a correct balance as far as hypothesis and pragmatic importance are concerned. Imperatively, the guide had key effect.
← | →
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A magnificent course - a lot of valuable illustrations and an agreeable educator.
← | →
Short course
In London
Description
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Type
Short course
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Location
London
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Duration
3 Days
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Start date
Different dates available
An intensive three day workshop on trading and managing risk of vanilla equity derivatives. Presented by Alberto Cherubini.
This programme provides a solid understanding of modern vanilla equity derivatives and of their markets, practices and conventions, both from the buy side and sell side perspective. The second part will explore the technical basis of derivatives pricing, hedging and risk management.
Delegates will assess volatility in its different meanings, and explore how it impacts option pricing. The Black Scholes framework is discussed in depth including extensions to it, while the last session covers the volatility surface in detail, including trading and risk management of vanilla portfolios. The course will also explain how to compute probabilities from market option prices, and discuss applications to proprietary trading and simple exotic options.
Exercises, practical examples and case studies will help delegates understand and retain the knowledge to be applied back at work.
Facilities
Location
Start date
Start date
About this course
Beginners in equity derivatives, buy-side equity professionals, sell side junior salespeople, brokers, middle and back office, legal and IT professionals. The course will cover details of market practices and conventions, so it is suited to derivatives professionals from other asset classes considering expanding into equity derivatives.
The first day requires only very basic financial maths including present value of money and the exponential. From the second day, knowledge of calculus (derivatives and integrals) and basic statistics (average, variance, standard deviation) is necessary. Having some Excel experience will enable the attendants to benefit fully from the workshops and exercises.
Reviews
-
The course material and the coach were fabulous. I can prescribe this course to any quants.
← | →
-
This course is very much organized and nicely exhibited. There was a correct balance as far as hypothesis and pragmatic importance are concerned. Imperatively, the guide had key effect.
← | →
-
A magnificent course - a lot of valuable illustrations and an agreeable educator.
← | →
Course rating
Recommended
Centre rating
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This centre's achievements
All courses are up to date
The average rating is higher than 3.7
More than 50 reviews in the last 12 months
This centre has featured on Emagister for 15 years
Subjects
- Trading
- Options
- Probability
- Derivatives
- Risk
- IT risk
- Equity
- Equity Derivatives
- Market
- Mechanics
- Risk Management
- Zoology
- OTC vanilla
- Trading Strategies
- Investment
- Market structure
- DELTA
- Parameterisation
- Interpolation
- Hedging strategies
Teachers and trainers (1)
Alberto Cherubini
Lecturer
Dr Alberto Cherubini was Head of Equity Derivatives Exotic Trading at Citigroup and as such he is among the handful of people across the globe with the unique experience of running a wholesale structured book during the severe market crisis of 2008. Dr Cherubini is currently the principal consultant at EQ Finance, which he started in 2009, and teaches equity derivatives on the Masters in Mathematical Finance at the University of Bologna.
Course programme
Introduction
The forward
- The importance of the forward
- Forward contract vs. futures
- The forward price
- Static replication and arbitrage
- Margins, funding, the box
- Why delta not always 1
- Effects of dividends, borrow costs, taxes, funding
Options basics
- Vanilla options payoffs
- Time and intrinsic value
- ATM, ITM, OTM
- Put call parity arbitrage
- Dependence on inputs
- Theta
- Model independent bounds on price
- First mention of Black Scholes formula
Overview of products
Option Features
- Cash settled/Physical delivery
- American / European
- Multipliers
- Notional vs. units
- Percentage vs. absolute
- Corporate actions
Delta 1 products
- Futures, EFP, cash & carry
- Forward contracts, synthetics, combos, jelly rolls
- Equity swaps and the like, CFD's
- Trading conventions and mechanics of execution
- Index vs. single stocks
- Options on futures
- Examples from various markets
- Trading conventions, mechanics of execution
Using Options outright: Investment and Trading Strategies
Directional trading
- Conversions, synthetics
- Call and put (Bull and Bear) spreads
- Collars, Risk reversals
- Calendars
- Straddles and strangles
- Butterflies
- Others
Yield enhancement and cost reduction strategies
- Over and under writing strategies
- Stock replacement strategies
Using Options outright: Risk Reduction Strategies
Use of vanilla options in portfolios: puts, calls, collars, futures
Hedging a portfolio
- Costs Is it worth it?
- Timing Using axes
- Rolling
- Selecting the instruments
- Texas hedging
Overview of markets and business models
Market knowledge
- Conventions
- Execution mechanics
- IDB's
- Timings, numbers
- Main players, business models
- Behaviours and biases
- Flows
- Supply and demand
- Impact on other markets and prices
Volatility
The role of volatility in option pricing
Volatility as an ‘asset class’
Implied volatility
- Meaning
- A mention of the surface
- Standard formulas
- Advanced formulas
- Properties and empirical observation
- Mention of estimation methods
Vanilla Option: Black Scholes pricing
- Options trading: is it a zero sum game?
- Dynamic delta hedging of options: a simple minded strategy
- Volatility trading in a simplified sense
- Intuitive derivation of Black Scholes Merton formulas (BSM)
- Rules of thumb
- Understanding BSM from different point of views
- The BSM assumptions and how they break
- American options: early exercise in practice
Option Price Sensitivities
Delta, gamma, vega, theta, rho
How greeks change: time behaviour, spot and strike behaviour, higher order greeks (vanna, volga)
Examples, exercises
Dynamic delta hedging in practice
- BSM delta hedging workshops
- P&L analysis
- The practical meaning of gamma
- Theta decay: the cost of time
- The theta/gamma balance
- Rules of thumb
- Volatility trading revisited
- Vega vs. Gamma
- Trading “realised”
- Trading “implied”
- Details of delta hedging strategies
- Alternative choices for delta
- A word of caution: jumps and their effect on the hedging argument
Day three
Implied Probability and Expectation Pricing
- The link between vanilla option prices and probability
- Application to proprietary trading
- Delta from probability?
- Expectation pricing: using the probability distribution to price derivatives
- Pricing exotics without models
- Calculating the static hedging portfolio for an exotic option
- The missing link: conditional probability
- Why exotic prices are non unique
Extending the BS framework
- How Black and Scholes fails
- Simple extensions:
- Leyland formula and other rules of thumbs
- Effect of discrete hedging
- Various kinds of non normality
- Gaps and jumps
- Lack of liquidity and feedback loops
- Implications of non normality on hedging strategies
- Hedging discreetly and with costs
- Short gamma feedback loop, P&L effect
- The link between vanilla option prices and probability
- Application to proprietary trading
- An introduction to exotics:
- Expectation pricing: using the probability distribution to price derivatives
- Why exotic prices are non unique
The Volatility Surface Origins and meaning of the surface
Shape
- Skew, smile and their causes
- Link to credit risk: “put floor” from default
- Other interpretations - Termstructure and roll down
- Stickiness and others
- Realised dynamics of the surface
- Theory, practice, and traders' biases
- Effect of different dynamics on delta calculation
Risk to the surface
- Reporting vega by bucket
- Calculating skew and smile exposures
- comparison to volga and vanna
- tricks and pitfalls
- 3 ways to trade skew
- Term structure trades
- Smile and curvature trades
- Different needs, different tools
- The pitfalls of a non parametric volsurface
Equity Derivatives 1: Trading and Managing Vanilla Options