Derivatives

Derivatives have many different applications depending who is using them and why they are being used.  The most common application is to assist corporations, commodities producers, investors and financial services firms manage risk exposures.  Alternatively, derivatives may be used by investors and speculators to make leveraged bets and reduce transaction costs in an enormously wide range of markets.

While many derivatives contracts are traded on formal exchanges, the vast majority of derivatives are over-the-counter (OTC) – essentially private, customized transactions.  These OTC transactions bring with them additional risks, namely counterparty credit, that do not exist for exchange traded contracts.

Finance IQ provides a complete offering of derivatives courses that range from introductory overviews to advanced level seminars, along with specific programs that focus on the operational and credit risks incumbent in managing the use of these financial products.

Introduction to Derivatives
Options Overview
Options Trading and Portfolio Management
Swaps Overview
Intermediate Swaps
Forwards & Futures Overview
Intermediate Forwards & Futures
Demystifying Structured Products
Equity Derivatives
Introduction to Credit Derivatives
Operational Risk Financial Derivatives
Credit Risk of OTC Derivatives

Introduction to Derivatives

Derivatives encompass a wide variety of both end-users and securities-types and are a central component of the capital markets.  This introductory-level course provides participants with a thorough understanding of the major types of derivatives and why they are used by different types of investors in various situations.  The course will compare futures to forwards contracts and describe how both are used to hedge existing positions. Participants will also learn about options concepts, conventions, opportunities and risks.  In addition, the world of swaps will be examined with descriptions of the many applications of swaps-style contracts including interest rate, currency, asset and credit default swaps.

Learning Objectives

Outline/Topics:

  • Identify the users of options, forwards, futures and swaps
  • Explain why and how derivatives are used in practice
  • Describe the characteristics and risks for each type of derivative
  • Explain how futures markets operate
  • Demonstrate hedging and trading with stock and interest rate futures
  • Explain key option terminology – calls/puts, time value/intrinsic value, time decay, “moneyness”
  • Demonstrate basic hedging strategies using options
  • Define and compare different types of swaps contracts
  • Calculate pay-offs and identify risk-return trade-offs for various derivatives
  • Describe and explain credit derivatives and market characteristics

Duration:  One day

Program Level:  Basic

Prerequisites:  There are no prerequisites

CPE:  7.0 CPE Credits

1 Day Program
  • Introduction
  • Basic positions and concepts
  • Forwards and futures
    • Types
    • Clearinghouse and other contract differences
    • Forward pricing, valuation and uses
    • Futures contracts, pricing and convergence
    • Contango and backwardation
  • Options
    • Calls and puts
    • Option premiums and strikes
    • ITM, OTM, and ATM
    • European versus American
    • Put-Call parity
    • Option Greeks
  • Swaps
    • Types and applications
    • Characteristics and risks
    • Credit derivatives

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Options Overview

Options are used by sophisticated investment firms, large corporations and individual investors in a variety of end-uses.  This course, delivered by a former institutional trader and dealer, explores in detail options concepts, conventions, opportunities and risks from the perspective of an industry practitioner.   Participants will be introduced to option pricing models and will explore the Greeks – the key measures of risk and sensitivity - in detail.  Participants will also learn intuitive approaches to understanding put-call parity, volatility surfaces and will explore options trading strategies.

Learning Objectives

Outline/Topics:

  • Recognize and explain option related terminology
  • Explain risk/return characteristics of long and short put and call positions
  • Identify and describe the varieties and types of options
  • Describe the basic assumptions, characteristics, inputs and applications of the most common options pricing models
  • Identify and define options “Greeks”
  • Explain put-call parity
  • Identify and describe option trading strategies and the risk/reward characteristics of each strategy

Duration:  One day

Program Level:  Basic

Prerequisites:  There are no prerequisites

CPE:  7.0 CPE Credits

1 Day Program
  • Introduction
  • Basic positions and concepts
    • Calls and puts
    • Option premiums and strikes
    • ITM, OTM, and ATM
    • European versus American options
  • Varieties
    • Equity
    • FX
    • Fixed Income
    • Commodity
  • Option pricing models
  • Put-call parity
  • Option trading strategies
  • Option Greeks
  • Focus on volatility hedging

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Options Trading and Portfolio Management

This one day intermediate course provides participants with a working knowledge of option pricing, hedging and trading.  The course goes beyond the basics to explain how option risk measures are related to underlying market conditions.  Participants will gain an understanding of how volatility is traded in addition to learning insights into the process of managing an options-based portfolio.

Learning Objectives

Outline/Topics:

  • Explain key option pricing variables
  • Discuss option risk analysis through the ‘Greeks’
  • Explain binomial, Black-Scholes, Black-Scholes variants and Monte-Carlo pricing models
  • Discuss and measure volatility
  • Explain option smiles and skews
  • Explain trading strategies using straddles, strangles and risk reversals
  • Describe the construction and pay-off of complex option trades

Duration:  One day

Program Level:  Intermediate

Prerequisites:  Introduction to Derivatives (or similar)

1 Day Program
  • Key Pricing Variables
    • Option notation
    • Factors affecting option prices
    • Time
    • Possible disadvantages of additional time for European calls
    • European versus American options
    • Put-Call parity
    • Put-Call parity and arbitrage
  • The “Greeks”
    • Definition
    • Option pricing input sensitivities – “The Greeks”
  • Option volatility
    • Interpreting volatility
    • Problems using volatility
    • Heteroskedasticity
    • Leptokurtic or “fat-tailed” asset returns: an unfortunate reality
    • Volatility smile for equities (skew)
  • Pricing Models
    • Options pricing
    • Binomial tree
    • Monte Carlo simulation
    • Black-Scholes
  • Trading strategies
    • Main trading strategies
    • Delta of an option
    • Dynamic hedging
    • Implied volatility
    • Exotic option trading strategies
  • Summary and Questions

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Swaps Overview

Swaps have become an integral part of risk management programs used by financial, non-financial and investment firms.  Participants in this one-day course will learn about the evolution of the swaps market and the conventions used within it.  The program also explores in detail how equity swaps, interest rate swaps, cross-currency swaps, asset swaps and credit default swaps are structured, priced and traded.  Participants will also learn about the use of swaps for hedging and speculation, including caps, floors and collars, and the controversies surrounding certain swap products.

Learning Objectives

Outline/Topics:

  • Review key elements in Basel II which remain in Basel III
  • Identify market participants and describe the motivations behind the use swaps
  • Describe the characteristics of various types of swaps including interest rate, currency, equity, commodity and credit default swaps
  • Explain how swaps contracts are constructed and priced
  • Explain how swaps rate curves are constructed
  • Describe the risks of using swaps
  • Understand how counterparty exposure is measured and the techniques used to manage this risk

Duration:  One day

Program Level:  Basic

Prerequisites:  There are no prerequisites

CPE:  7.0 CPE Credits

1 Day Program
  • Interest rate swaps
    • Contract specifications
    • Plain vanilla swap
    • Cash flows and risk
    • Swap valuation and pricing
    • Other types
  • Currency swaps
  • Equity swaps
  • Commodity swaps
  • Credit default swaps
    • Definition and misnomers
    • Common swap provisions
    • Specific issues
    • CDS spread
    • Credit events
    • Reference issues and obligations
    • Settlement: cash versus physical
    • Capital market equivalent positions
    • CDS indexes
  • Risk management and uses of swaps
    • Cash flow hedging
    • Fair Value hedging
    • Arbitrage

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Intermediate Swaps

This more advanced course on swaps provides participants with a practical examination of swap pricing, structure and valuation.   The course will also review the application of swaps in trading and interest rate risk management.

Learning Objectives

Outline/Topics:

  • Discuss the evolution and current structure of the swaps market
  • Identify market participants and describe the motivations behind the use swaps
  • Describe the characteristics of various types of swaps including interest rate, currency, equity, commodity and credit default swaps
  • Explain how swaps contracts are constructed and priced
  • Explain how swaps rate curves are constructed
  • Describe the risks of using swaps
  • Understand how counterparty exposure is measured and the techniques used to manage this risk

Duration:  One day

Program Level:  Intermediate

Prerequisites:  Swaps overview (or similar)

CPE:  7.0 CPE Credits

1 Day Program
  • Interest Rate Swaps
    • Cash flows at settlement
    • Capital market equivalent positions
    • Use of swaps to hedge cash flows
    • Liability hedging for altering fixed and floating liabilities
    • Asset hedges
    • Swap pricing and valuations
  • Other types of swaps
    • Equity – structures and applications
    • Currency variations and exposure risk management
    • Commodity swaps and uses
    • Swap variations
    • Customization of swaps for risk management
  • Credit Default Swaps
    • Pricing and valuation
    • CDS contracts and spread/premium
    • Factors affecting the CDS spread
    • CDS spreads versus credit market spreads
    • Trading and risk management applications
    • Hedging credit risk
    • Capital market equivalent positions
    • Long exposure motivation
    • Speculation by synthetically shorting 
    • CDS indexes

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Forwards & Futures Overview

Forwards and futures are derivatives that allow users to gain exposures to and hedge pricing risks associated with a wide variety of underlying assets.  This course provides participants with a deep dive into the differences between forwards and futures contracts and how they are used in the marketplace today.   Participants will also explore the functioning of the futures markets, the role of the exchanges and how futures contracts are priced.  The various types of forwards and futures will be described along with the conventions related to these derivatives contracts.

Learning Objectives

Outline/Topics:

  • Explain terminology and characteristics of forwards and futures contracts
  • Identify the key market participants in the forwards and future markets
  • Differentiate between exchange traded and OTC contracts
  • Explain the role of a clearinghouse
  • Describe the role of margin in futures trading
  • Calculate pricing for futures and forward contracts
  • Discuss trading and risk management applications for forwards and futures contracts

Duration:  One day

Program Level:  Basic

Prerequisites:  There are no prerequisites

CPE:  7.0 CPE Credits

1 Day Program
  • Basic positions and concepts
  • Contract features
  • OTC trading of forwards
  • Listed trading of futures
  • Pricing and valuation
    • Forward pricing curve
    • Basis difference
    • Cash versus futures market prices
    • Cost of carry
    • Contango and backwardation
  • Uses of forwards and future
    • Hedging
    • Spreads
    • Speculating
    • Risk management

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Intermediate Forwards & Futures

This course provides participants with an overview of short-term (3-month) interest rate futures and bond futures.  Delivered by the former Chief Dealer and Head of Global Markets for American Express Bank, the program covers the main aspects of interest rate futures pricing and the ways in which futures can be used for hedging and trading purposes.

Learning Objectives

Outline/Topics:

  • Demonstrate how futures are priced (arbitrage pricing)
  • Explain of the key characteristics of bond futures
  • Explain how to hedge with 3-month futures (stack, strip, interpolated hedges)
  • Explain how to hedge bond portfolios with bond futures
  • Demonstrate the importance of the cheapest-to-deliver in bond futures hedging and trading
  • Describe the main futures trading strategies, including basis trading
  • Explain the mechanics of basis trading

Duration:  One day

Program Level:  Intermediate

Prerequisites:  Forward and Futures Overview (or similar)

1 Day Program
  • Overview of Futures
    • Characteristics
    • Most popular contracts
  • Pricing and Valuation
    • Generic futures pricing
    • Futures pricing example
    • Generic futures valuation
    • Pricing coupon bearing bond futures
    • Pricing forward and futures on rates
    • Forward rate agreements
    • Contango and backwardation
    • Normal contango and normal backwardation
  • CME Eurodollar and Futures
    • Eurodollars and Eurodollar futures
    • Profit and losses in trading Eurodollar futures
    • Who uses Eurodollar futures
    • Hedging a borrowing rate
  • CBOT Treasure Note & Bond Futures
    • Treasury notes and futures
    • Conversion factors and cheapest-to-deliver
    • Treasury long hedge
  • Applications
    • Hedging an anticipated bond issuance
    • Hedging a repurchase of debt

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Demystifying Structured Products

This course will provide participants with a broad overview of structured products market.  The class will define the various types of structured products and participants will gain an understanding of the fundamental building blocks of structured products, why they are used and who uses them.  Pricing and risks associated with these products will be thoroughly discussed and will help students with an evaluation of the merits and hazards of structured products.  Participants will also learn about the various drivers in this emerging market.

Learning Objectives

Outline/Topics:

  • Define and categorize structured products
  • Explain the fundamental building blocks of structured products and drivers of the market
  • Explain the basic payoff profile of common derivatives used in structured products
  • Utilize basic derivatives to construct structured products
  • Discuss and analyze the basic fundamentals of pricing
  • Identify the risks associated with various structured products
  • Explain the relationship between securitization and the creation of structured products
  • Identify and discuss market, credit, counterparty, liquidity and operational risks

Duration:  One day

Program Level:  Basic

Prerequisites:  There are no prerequisites

CPE:  7.0 CPE Credits

1 Day Program
  • Basic concepts
    • Definition and fundamental building blocks
    • Categories of structured products
    • Drivers of the market
  • Building blocks
    • Forwards, swaps, and options
    • Payoff profile
    • Applications
    • Fundamental pricing
    • Construction of a structured product
  • Credit products
    • Process of securitization
    • Cash flows for CDO and synthetic CDO
    • Credit indices
    • Tranches
    • Pricing components and trading strategies
  • Equity products
    • Types
    • Principal protected
    • Converts and reverse converts
    • Pricing components
    • Hybrid equity/credit
  • Fixed income
    • Types
    • Construction of fixed income product
    • Pricing components
    • Hybrid equity/interest rates
  • Other types of structured products
    • Foreign exchange
    • Commodity
  • Risks
    • Operational
    • Market
    • Credit
    • Counterparty
    • Liquidity

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Equity Derivatives

Equity derivatives provide a means by which investors can obtain exposure to or manage the risk associated with directly investing in stocks.  This course provides participants with a detailed description of the main equity derivatives traded in the market today as well as the motivations for their use in portfolio management.  This one-day program will explain the essential characteristics of equity forwards, futures, swaps and options and how they are used in various trading strategies.

Learning Objectives

Outline/Topics:

  • Discuss the rationale for the use of equity derivative instruments in various trading strategies
  • Explain the key features and applications (both for institutional investors and corporate customers) of equity forwards, futures, swaps and options
  • Demonstrate the link between the cash equity and derivatives market
  • Identify risks and risk management procedures for equity derivative instruments
  • Explain the importance of structured equity derivative instruments

Duration:  One day

Program Level:  Basic

Prerequisites:  There are no prerequisites

CPE  7.0 CPE Credits

1 Day Program
  • Forwards
    • Motivations for use
    • Structure and pricing
    • Dividend treatment
    • Valuation
    • Stock repurchase
  • Options
    • Calls and puts
    • Equity option styles
    • Characteristics
    • Concept of “moneyness”
    • Pricing models
    • Equity option strategies
    • Equity option strategies: Risk and reward
    • Delta hedging
  • Futures
    • Forwards versus futures
    • Clearinghouse and margin
    • Stock index futures structure and pricing
    • Single stock futures
    • Applications and motivations for use
  • Swaps and Equity Linked Notes
    • Swap characteristics
    • Single stock swaps
    • Index or portfolio swaps
    • Equity linked notes overview
    • Equity linked notes structure and motivation

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Introduction to Credit Derivatives

The evolution and establishment of credit derivatives in the last twenty years has made a significant impact on the world of finance, the global markets and the world in general.  Delivered by the former Chief Dealer and Head of Global Markets for American Express Bank, this course will provide participants with an in-depth examination of credit derivatives and their various structures and uses, as well as, an analysis of how they came to be a major component of the financial crisis. Through the use of exercises and case studies, participants will have the opportunity to understand the roles, uses, pricing and valuation in their respective markets today.

Learning Objectives

Outline/Topics:

  • Define a credit default swap and understand what their use is
  • Compare the different types of credit derivatives
  • Explain how a credit default swap is priced
  • Evaluate the current market for credit derivatives and the effect that regulation has had on this market
  • Identify the players in this market and their motivations and goals
  • Compare and contrast credit default swaps to other swaps as well and insurance

Duration:  One day

Program Level:  Basic

Prerequisites:  There are no prerequisites

CPE:  7.0 CPE Credits

1 Day Program
  • Types of Credit Derivatives
    • Credit-linked notes
    • Asset backed swaps
  • Credit default swap valuation
    • Source of price
    • Is this a swap?
  • CDS Market
    • Change in market facts and figures
    • Index linked products
    • Central clearing
  • CDS Uses
    • Who uses CDS
    • What are some uses
    • Funding cost advantage
    • Bond hedge example
  • Counterparty credit risk

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Operational Risk of Financial Derivatives

Despite the widespread use of derivatives by investors, corporate end-users and traders, operational risk remains one of the least understood and neglected risk in managing derivatives portfolios. This two-day course is designed for risk managers, auditors, compliance officers, back office and IT professionals, and regulators who are seeking  to better identify, measure, control and monitor this important risk.  The program will be highlighted with case studies of recent operational risk management initiatives and practices in the global derivatives marketplace.

Learning Objectives

Outline/Topics:

  • Define operational risk
  • Identify how operational risk is manifested in OTC and exchange- traded derivatives
  • Evaluate how operational risk can materialize in the front, middle, and back offices of a derivatives group
  • Discuss different measurement approaches to operational risk
  • Evaluate best practices to control and monitor operational risk

Duration:  Two days

Program Level:  Basic

Prerequisites:  There are no prerequisites

CPE:  14.0 CPE Credits

Day 1
  • Defining and identifying operational risk
  • Sources of operational risk
    • People
    • Processes
    • Technology
    • External events
  • Regulatory influence
  • Life cycle of a financial derivative
    • Role of front, middle, and back offices
    • Pre-and post-trade activities
    • Confirmation and settlement processes
    • Evaluation of internal controls
    • Standards for reliability and soundness of back office
    • Reconciliation procedures
    • Resolution of disputed trades and discrepancies
    • Fraudulent trades and their prevention
Day 2
  • Measuring operational risk
    • Operational risk measurement models
    • Advantages and risks of operational risk measurement models
  • Controlling and Monitoring Operational Risk in Derivatives Portfolios
    • Best practices to control operational risk
    • Advantages and disadvantages to back offices structures
    • Financial regulations and their impact on the control of operational risk
    • The role of key personnel
    • Best practices in monitoring operational risk

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!

Credit Risk of OTC Derivatives

In the last decade-and-a-half, over-the-counter (OTC) derivatives have grown from being relatively obscure financial products into standard risk management tools. Notwithstanding their commonplace standing today, establishing an effective risk management process for OTC derivatives remains a challenge for end-users, dealers, clearing agencies and other related parties. Additionally, Dodd-Frank and Basel III rules have changed the OTC derivatives landscape significantly. This two day course will focus on practical implementation issues for establishing an effective risk management framework in an uncertain, global regulatory environment.

Learning Objectives

Outline/Topics:

  • Define credit risk
  • Identify credit risk in OTC FX, Interest Rate, and Equity Derivatives
  • Evaluate credit risk measurement methodologies
  • Identify basic capital regulatory requirements
  • Describe the mechanics of major credit derivatives
  • Describe an effective risk management framework for addressing credit risk in OTC derivatives
  • Identify and describe credit risk management monitoring practices

Duration:  Two days

Program Level:  Basic

Prerequisites:  There are no prerequisites

CPE:  14.0 CPE Credits

Day 1
  • Derivatives and the Evolving Role of the Credit Risk Manager
    • Risk management process and framework
    • Defining credit risk
    • Pre-settlement and settlement risks of derivatives
    • Role of the credit risk manager
  • Statistics Review
    • Distributions and confidence levels
    • Volatility and volatility calculations
  • Credit Risk in Derivatives
    • Foreign exchange forwards, swaps, and options
    • Interest rate swaps
    • Equity options
    • Complex options
Day 2
  • Measuring credit risk
    • Estimating counterparty risk
    • Estimating risk mitigation
    • Challenges in estimating PFE
    • Documentation, netting and enforceability
    • Monte Carlo techniques
    • Credit risk measurement models
    • Stress testing and back testing
  • Controlling credit risk
    • Requirements for Board and Senior Management to control credit risk
    • Challenges with data quality and model development and maintenance
    • Credit risk mitigants
  • Monitoring credit risk in derivatives
    • Monitoring process
    • Best monitoring practices
    • Integration of the framework systems and data

For a detailed outline and additional information on this course or to find out about our other courses, contact us at +1-646-244-5190 or [email protected]!