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FINANCIAL MARKET COURSES

Options

Courses In This Course

Options are among the most versatile instruments in the derivatives market. Unlike many other derivatives, such as forwards and futures, options allow holders to 'walk away' from their position if the underlying market moves against them. This course covers the concepts of option volatility and option valuation, along with pricing models and trading techniques for options. Option Greeks, the coefficients that explain how option values behave in relation to changes in market parameters and how to hedge some of the risks associated with options, are also described in detail. The course concludes with a detailed course on managing an option portfolio.

Objectives

In this course, you will explore:

The fundamentals of option valuation

The price evolution process for options

Various option pricing models, including Black-Scholes (and its variants) and numerical procedures such as binomial models and Monte Carlo simulations

Delta, gamma, and the other option Greeks

Trading strategies with options

The role of option market makers in managing multiple exposures derived from option portfolios

Prerequisite Knowledge

An understanding of the Introduction to Derivatives 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 - INTRODUCTION TO OPTION

       VALUATION

    Overview

    Option valuation can be (ultimately) a very complex process; considerations include the option pricing factors, the way in which an option pays out, the market processes of underlying assets, and the relationships between multiple assets. It is at this point that the subject enters the esoteric realms of advanced mathematics. However, before embarking on any complex valuation, there are a number of fundamental foundations.

     

    This course examines these matters and also outlines the way in which prices can be 'enforced' by arbitrage possibilities. This absence of 'free lunches' is fundamental to most financial markets pricing, but in particular options.

    Course Duration

    75 mins

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    Prerequisite Knowledge

    Options - An Introduction

  •    OPTIONS - FUTURE ASSET PRICES &

       VOLATILITY

    Overview

    Option pricing requires some estimation of possible future values of an asset; some model is required which shows where prices can move to, and with what probability. The influences can be many, but at least some part of the future price evolution is random. This randomness can be estimated by analyzing the past values of an asset. It is also incorporated into option models through a 'volatility' term. However, the historic estimation and the use of volatility as a pricing input are very different things. This course will provide you with an insight into future asset pricing and volatility.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Options – An Introduction

    Options – Introduction to Option Valuation

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  •    OPTIONS - REPLICATION, RISK NEUTRALITY,

       & BLACK-SCHOLES

    Overview

    Although options in financial markets have a long history, it is only recently that option pricing has been seen as having a sound theoretical basis. This course introduces the Black-Scholes pricing model for options, one of the most famous in modern finance. It examines the foundations of the approach, particularly the key issues of replication and risk-neutrality, and gives examples of both the basic pricing formula and the simple extensions that followed soon after. It also highlights some potential shortcomings with the approach.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Options – Introduction to Option Valuation

    Options – Future Asset Prices & Volatility

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  •    OPTIONS - BEYOND BLACK-SCHOLES

    Overview

    The Black-Scholes approach to option pricing, while a massive advance on what little had been seen before, contains serious shortcomings. For example, the market assumptions are somewhat unrealistic, and the pricing formulas can only value a limited number of instruments.

     

    This course examines alternative numerical methods which allow option practitioners to value a wider range of instruments, and can also incorporate different price evolution assumptions.

    Course Duration

    90 mins

    Prerequisite Knowledge

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

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  •    OPTIONS - GREEKS (PART I)

    Overview

    The various sensitivities of an option to different factors are called ‘the Greeks', because each of those sensitivities is usually denominated by a Greek letter: delta, gamma, theta, and so forth. The management of options, particularly the management of option portfolios, is complicated by these multiple sensitivities. A key phrase for market participants is 'dynamic hedging'; unlike some other financial instruments, hedging and management of option portfolios requires constant vigilance. Awareness of the various changes in value due to market movements is essential.

     

    The two courses in this series provide definitions of each of the key sensitivities, and show the calculations for values in terms of the theoretical continuous-time Black-Scholes-Merton option pricing model. The courses also show how these values change with respect to common variables such as time and strike price. Finally, 'real world' adjustments to the theoretical values are examined in order for those sensitivities to be useful to an option participant. The first of the courses focuses on delta and gamma.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Options – An Introduction

    Options – Future Asset Prices & Volatility

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

     

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  •    OPTIONS - GREEKS (PART II)

    Overview

    This course is the second of two courses which focus on the way an option generates exposure given changes in market variables. The first course (Options - Greeks (Part I)) addressed the exposures generated by a change in the underlying price of an asset by examining the key sensitivities of delta and gamma. In this second course, the remaining major sensitivities of an option’s price, relative to time, volatility, and interest rates, are outlined. This course also examines other secondary measurements and focuses on the issues faced when managing a portfolio of options.

    Course Duration

    75 mins

    Prerequisite Knowledge

    Options – Greeks (Part I)

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  •    OPTIONS - TRADING STRATEGIES

    Overview

    The use of options exponentially increases the flexibility available to a market investor, trader or speculator. Strategies can be individually tailored to reflect particular market views. The risk-profile of a market operator can be increased or decreased in a customized fashion. While the names change from market to market, there are a number of common option-related strategies. Although the potential number of strategies is infinite, this course outlines those that are most frequently encountered, and explains when they are appropriate.

    Course Duration

    90 mins

    Prerequisite Knowledge

    Options – An Introduction

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  •    OPTIONS - MANAGING AN OPTION

       PORTFOLIO

    Overview

    Option traders deal in multiple options rather than a single position, which means they are required to manage portfolios and cope with various risks associated with these portfolios. Consequently, option traders need to be aware of multidimensional changes in the market.

     

    This course explains the role of an option market maker as opposed to a trader speculating on the market. The course describes in detail how the initial exposure of an option trader is hedged and looks at ways of dynamically hedging market exposure over time. The course also provides an overview of managing multiple exposures derived from the option portfolio.

    Course Duration

    90 mins

    Prerequisite Knowledge

    Prior to studying this course, you should have a strong understanding of options as detailed in the following courses:

     

    Options – An Introduction

    Options – Introduction to Option Valuation

    Options – Greeks (Part I)

    Options – Greeks (Part II)

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