Exotic Derivatives, Structured Products & Volatility Modelling

Advanced Course with Excel/VBA with TERM SHEET Pricing

• Objective:

• A four (4) day training programme for traders and structuring professionals to provide a detailed analysis of structuring, pricing and risk issues in the area of fixed income and FX derivatives and structured products, with special emphasis on volatility surface modelling and stochastic volatility models. 

• Methodology:

• The training will be carried out using problem solving methodology and make use of case studies and Excel/VBA spreadsheets.

• In the course the trainees will actually price between 10 to 15 generic FX/IR derivatives term sheets and between 10 – 12 exotic FX/interest rate linked notes (actual term sheets). All term sheets will be priced in Excel/VBA using standard and accepted techniques such as closed form, trees and Monte Carlo simulation and most of the emphasis will be on multi-asset structures;

Day 1

Volatility Modelling and Volatility Surface

Morning Session (9:30 am to 12:30 pm)

Implied Volatility and Model free Volatility

• Black-Scholes Model and estimation of implied volatility using Newton-Raphson;

• Pricing vanilla fixed for floating swaps;

• Model free implied volatility, Britten-Jones & Neuberger, Jiang and Tian’s methodology and implementation on a Excel spreadsheet (with Numerical Integration);

• Interpolation and extrapolation method and VIX index;

• Model free higher moments and Gram-Charlier implied moments

Afternoon Session (2:30 pm to 5:30 pm)

Stochastic Volatility Modelling

• Heston’s (1993) model of stochastic volatility, stochastic differential equation of the square root process of the variance;

• Implementing Heston’s model in closed form;

• The full valuation approach and Monte Carlo implemention of Heston’s model;

•  Implementation of Heston and Nandi (2000) GARCH model;

• Estimation of Greeks from the Heston’s model;

Day 2:

Volatility Surface Modelling

Morning Session (9:30 am to 12:30 pm)

Dynamics of Volatility Surface

• Estimation of the forward-forward volatility from spot implied volatilities;

• Shape of the skew and smile in options market (FX markets and equity markets);

• Dupire’s equation and the estimation of local volatility function;

•  Derman-Kani discrete implied binomial trees for accounting for skew and smile;

• Adding jumps and how jumps affect the implied vols and skew;

• Local and implied vols in the jump-to-ruin model;

•    Impact of default risk on option prices;

•  Valuation of digital options and the impact of skew;

Afternoon Session (2:30 pm to 5:30 pm)

More on Volatiliy Surface and Volatility Derivatives

• Analyzing forward skew dependent claims – cliquet;

• aluation of Locally Capped and globally floored cliquet under Heston’s and local volatility assumptions;

• Analysis of reverse cliquets and Napoleon options;

• Log contracts and amortizing options and generalized option payoffs under Breeden & Litzenberger and Carr & Madan framework;

• Pricing volatility and variance swaps as portfolio of options;

• Quadratic variations and the VIX contracts – estimation issues;

Day 3:

Pricing IR & FX Structured Products & Exotic Derivatives - I

Morning Session (9:30 am to 12:30 pm)

Interest Rate Exotic Derivatives in a Monte Carlo framew

• Monte Carlo implemention of Vasicek and CIR models of mean reversion for short rate;

• Pricing of exotic caps and floors (digital, knock-out, etc.);

• Pricing of multi-asset (more than one short rate) products using Principal Components Analysis (Eigenvalues & eigenvectors) and Monte Carlo framework;

• Implementation of LIBOR Market model (LMM) in a Monte Carlo framework;

• Pricing of single asset and multi-asset IR structured notes (range accruals, snowballs & snowblades, CMS, etc.);

Afternoon Session (2:30 pm to 5:30 pm)
FX Exotic Derivatives in a Monte Carlo Framework

•  Pricing USD/JPY double knock out and hybrid notes;

• Pricing of multi-asset (more than one currency pair) FX structures using PCA and cholesky decomposition;

•  Pricing dual currency and triple currency deposits and multi-currency range accruals;

• Pricing power reverse dual currency swaps and notes (PRDC) and risk analysis;

• FX accumulators and indexed currency notes – embedded digital, Asian, barrier and lookback payoffs;

• Tricolour Capital guaranteed notes on multiple currency pairs;

Day 4:

Pricing IR & FX Structured Products & Exotic Derivatives - II

Morning Session (9:30 am to 12:30 pm)

More on FX and IR products

• Cox-Ross-Rubenstein (CRR) Tree to price Bermudan options on FX;

• Analysis of normal and lognormal trees for short rates;

• mplementation of a full blown Black-Derman-Toy tree for pricing caps and floors;

• Complex Path dependent structures with correlation: (i) GBP/JPY deconvergence swap (ii) CHF two year chooser Range Accrual note

• Estimation of greeks and risk sensitivities in products;

 

Afternoon Session (2:30 pm to 5:30 pm)

Callability and American/Bermudan style options

• Estimation issues in quadratic and cubic polynomial estimation;

• Longstaff and Schwarz methodology for implementation of American Monte Carlo;

• Pricing of American options in Longstaff-Schwarz framework;

• Pricing callable structured products using Monte Carlo and trees;

Risk Latte Company Limited

Address :	2/F, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong
Phone :	+852 2824 8695
Fax :	+852 2824 8000
Website :	www.risklatte.com
Email :	info@risklatte.com

All Candidates will be awarded a Certificate of Participation by Risk Latte Company.

For Registration and Enquiries please
fill out our Web-based form or Call the Risk Latte Team on +852 2824 8695