Derivatives: Pricing & Valuation for Investment and Risk Management

Derivatives: Pricing & Valuation for Investment and Risk Management

Course Description:

This 5-day intensive course covers the fundamentals of derivatives, focusing on their pricing and valuation in the context of investment and risk management. Participants will explore different types of derivatives, including options, futures, forwards, and swaps, and gain a deep understanding of the mathematical models used for their pricing. The course combines theoretical concepts with practical applications, providing tools to effectively use derivatives for hedging risks and enhancing portfolio performance. With a focus on real-world case studies and hands-on exercises, participants will acquire the skills to make informed investment decisions and manage financial risks using derivatives.

Learning Objectives:

By the end of this course, participants will:

• Understand the key characteristics and uses of derivatives (futures, forwards, options, swaps).
• Master the foundational concepts behind the pricing and valuation of derivatives.
• Learn the mathematical models and methodologies for pricing derivatives (Black-Scholes, binomial models).
• Apply derivatives for effective risk management strategies.
• Evaluate the risks associated with derivative positions, including counterparty risk, market risk, and liquidity risk.
• Use derivatives in the context of portfolio management to enhance returns or reduce risk.
• Understand the regulatory and ethical considerations involved in trading and using derivatives.

Learning Outcomes:

Upon successful completion of the course, participants will be able to:

• Price and value different types of derivatives using appropriate models.
• Build and implement derivative-based hedging strategies to mitigate financial risk.
• Analyze and manage derivative exposure in investment portfolios.
• Understand and apply the Black-Scholes model and other pricing frameworks in real-world scenarios.
• Conduct sensitivity analysis (e.g., Greeks) to assess the impact of market movements on derivative positions.
• Use swaps, options, and futures effectively for both speculative and hedging purposes.
• Navigate the regulatory environment and ethical considerations of derivatives trading.

Who Should Attend:

This course is suitable for:

• Investment professionals, portfolio managers, and financial analysts seeking to deepen their understanding of derivatives.
• Risk managers and treasury professionals who need to manage financial risk using derivative instruments.
• Traders and market-makers involved in derivative markets.
• Corporate finance professionals responsible for managing interest rate, foreign exchange, and commodity risks.
• Hedge fund managers and private equity professionals looking to use derivatives for investment strategies.
• Financial regulators and compliance officers overseeing derivative markets.
• Students or academics specializing in finance, risk management, or investment strategies.

Day 1: Introduction to Derivatives and Their Markets

• Overview of Derivatives: Types, Functions, and Markets
• The Role of Derivatives in Financial Markets
• Understanding Futures and Forwards: Characteristics and Pricing Basics
• Options: Call, Put, and Payoff Structures
• Swaps: Interest Rate and Currency Swaps

Day 2: Pricing and Valuation of Forwards and Futures

• Pricing Forwards and Futures: No-Arbitrage Principle and Cost-of-Carry Model
• Futures Contract Specifications: Pricing in Commodity, Interest Rate, and Equity Markets
• Marking to Market and Margin Requirements
• Hedging with Futures: Risk Reduction Strategies

Day 3: Options Pricing Models (Black-Scholes and Binomial Models)

• Understanding Option Payoffs and Payoff Diagrams
• Introduction to Option Pricing Models: Black-Scholes and Binomial Models
• The Greeks: Delta, Gamma, Theta, Vega, and Rho
• Volatility and Its Impact on Option Pricing
• Implied Volatility and Its Role in Options Markets

Day 4: Swaps and Their Valuation

• Interest Rate Swaps: Structure, Cash Flows, and Pricing
• Currency Swaps: Managing Foreign Exchange Risk
• Credit Default Swaps (CDS) and Their Role in Managing Credit Risk
• Swap Valuation Techniques: Discounting Cash Flows and Understanding Swap Spreads
• Managing Risk with Swaps: Applications in Corporate Finance and Portfolio Management

Day 5: Risk Management and Advanced Applications of Derivatives

• Hedging Strategies with Derivatives: Hedging Interest Rate, Currency, and Commodity Risks
• Using Derivatives for Portfolio Management: Speculation vs. Hedging
• Derivatives and Systemic Risk: Understanding Counterparty and Credit Risks
• Sensitivity Analysis: Managing Risk Exposure Using Greeks
• Regulatory and Ethical Considerations in Derivative Markets