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FINANCIAL MARKET COURSES

Options - Basket & Spread Options - An Introduction

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.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Define basket and spread options and distinguish them from other options

    List the main determinants of basket and spread option prices

    Explain the importance of correlation and volatility in terms of basket and spread options

    Distinguish between the different types of basket and spread options

  • COURSE OUTLINE

    Topic 1: The Basics of Basket & Spread Options

    The History of Basket Options

    Reasons for the Popularity of Basket Options

    Spread Options Basics

    Topic 2: The Determinants of Basket & Spread Options

    Introduction

    o Price of Underlying Assets

    o Strike Price

    o Time to Expiry

    o Risk-free Rate

    o Dividends

    o Volatility

    o Correlation

    o Correlation Example

    Topic 3: Correlation & Volatility Considerations for Basket & Spread Options

    Introduction

    Calculating Volatility

    Incorporating Correlation

    Correlation Matrix

    Correlation Matrix- An Example

    The Relationship Between Correlation and Volatility

    Topic 4: Types of Basket & Spread Options

    Introduction

    o Callable Basket Options

    o Callable Basket Options – An Example

    o Asian Call Options

    o Asian Call Options – An Example

    o Call-Spread Options

    o Call-Spread Options- An Example

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

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