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FINANCIAL MARKET COURSES

Exotic Options

Courses In This Course

Exotic options are instruments that vary one or more elements of the basic structure of plain vanilla call and put options. Exotic structures are designed to meet one or more objectives, including the payment of a lower option premium, a change in the risk profile and asset-liability matching. This course describes in detail some of the most popular exotic option structures, including those from the multivariate family (basket and spread options) and path dependent family (average rate and barrier options).

Objectives

In this course, you will explore:

The appetite for the growth of exotic options and the non-standard ways in which an instrument can be developed

The features, types, applications and pricing of barrier options

The structure and pricing of average rate options

The features, types, applications and pricing of basket and spread options

Prerequisite Knowledge

An understanding of the Options course is required.

Learner Profile

This course is designed for:

• New or recent recruits to the options desk

• Dealers/traders

• Portfolio managers

• Treasury department staff

• Sales and marketing executives

• Finance and accounting staff

• IT staff

• Compliance and regulatory staff

  •    OPTIONS - EXOTIC OPTIONS

    Overview

    The widespread acceptance of the Black-Scholes pricing formulas in the 1970s led to the beginnings of a growth trend in option products that has continued to the present day. New markets and products represent new profit opportunities, and instruments were quickly developed covering a wide number of asset classes. However, the natural commoditization of products quickly reduced profit margins, with the result that financial intermediaries sought non-standard, 'exotic' areas where rewards might be greater.

     

    This course outlines the appetite for the growth of 'exotic' options. Rather than attempting to describe an exhaustive list of structures (almost an impossible task due to the fecundity of investment bankers' imaginations), the course illustrates the non-standard ways in which an instrument can be developed. Some of the pricing and risk management issues are also examined.

    Course Duration

    90 mins

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    Prerequisite Knowledge

    Options – An Introduction

    Options – Introduction to Option Valuation

    Options – Future Asset Prices & Volatility

    Options – Replication, Risk-Neutrality, & Black-Scholes

    Options – Beyond Black-Scholes

  •    OPTIONS - BARRIER OPTIONS

    Overview

    Market participants are aware of the benefits of using options in their hedging and investing activities, but, when buying options, they are resistant to shelling-out cash on an instrument that may ultimately have no value. Barrier options can help in this regard.

     

    The most common forms of barrier option are simple ‘knock-in’ or knock-out’ structures where an option either comes into existence (or else is extinguished) if the price of some reference asset moves above or below a ‘barrier’ level. Since the existence of the barrier always reduces the possibility of exercise, the barrier option will be cheaper than a vanilla call or put. However, the pricing and trading of these instruments can be far from straightforward. This course describes the different forms of barrier option, how they are used, and how they are priced and managed.

    Course Duration

    90 mins

    Prerequisite Knowledge

    Options – Replication, Risk-Neutrality, & Black-Scholes

    Options – Beyond Black-Scholes

    Options – Greeks (Part I)

    Options – Greeks (Part II)

    Options – Exotic Options

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  •    OPTIONS - AVERAGE RATE OPTIONS

    Overview

    Average rate or Asian options are options whose payoff depends on average prices over a specified period (usually the life of the option). This course will cover the basic features of average rate options (AROs). It also describes the methods used to price an ARO and examines the sources of pricing sensitivity.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Options – An Introduction

    Options – Introduction to Option Valuation

    Options – Future Asset Prices & Volatility

    Options – Replication, Risk-Neutrality, & Black-Scholes

    Options – Beyond Black-Scholes

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  •    OPTIONS - BASKET & SPREAD  OPTIONS  - AN

       INTRODUCTION

    Overview

    The basket and spread options market has seen significant growth over the past couple of decades since the CBOE introduced cash-settled options on a basket of stocks in 1983. Both basket and spread options are exotic structures from the multivariate or multifactor family of options. This means that their payoffs are based on the performance of more than one asset, unlike conventional options whose payoffs are driven by the performance of a single asset.

     

    This course looks at basket and spread options in detail, examining their features and characteristics, as well as the different types available in the market.

    Course Duration

    60 mins

    Prerequisite Knowledge

    Options – An Introduction

    Options – Introduction to Option Valuation

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  •    OPTIONS - BASKET OPTIONS - EVALUATION

       & EVOLUTION

    Overview

    There has been enormous growth in the use of various forms of basket options since their initial introduction. This course examines some of the key variants and shows how these have become attractive to investors, particularly in the retail equity area. Although the products are often easy to understand in terms of payoffs, they raise particular issues around structuring, pricing, and hedging, especially as regards the role of correlation. This course outlines the issues and the key responses to the challenges.

    Course Duration

    90 mins

    Prerequisite Knowledge

    Options – Basket & Spread Options – An Introduction

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