Advanced Equity Options: Trading and Risk Management

London Financial Studies
En Singapore (Singapur)

*Precio Orientativo
Importe original en USD:
US$ 4.635

Información importante

Tipología Short course
Lugar Singapore (Singapur)
Duración 3 Days
Inicio 23/07/2018
  • Short course
  • Singapore (Singapur)
  • Duración:
    3 Days
  • Inicio:

This course gives you an in depth understanding of how the Black Scholes Merton framework is currently used in the market, including its modifications, elucidating the equivalent probabilistic approach and detailed discussion of volatility surface issues.

Delegates will review common practice problems and review solutions for issues such as building illiquid volatility surfaces, hedging tail events and dealing with more exotic products.

Workshops make extensive use of Excel models to illustrate real life situations. All the relevant quantitative techniques are discussed; however complex maths such as stochastic calculus is avoided.

Información importante
¿Qué objetivos tiene esta formación?

¿Esta formación es para mí?

Derivative traders and market makers
Portfolio managers
Risk managers
Research analysts
Quant analysts
Product controllers
Senior managers and other professionals who need in-depth knowledge of equity derivatives

Requisitos: Good working knowledge of vanilla options Knowledge of Black Scholes Merton pricing formulas and standard Greeks The concepts of implied and realized volatility Basic mechanics of vanilla derivatives markets and instruments

Instalaciones y fechas
Dónde se imparte y en qué fechas
Inicio Ubicación
23 jul 2018
The Finexis Building, Singapore, Singapur
Ver mapa
Inicio 23 jul 2018
The Finexis Building, Singapore, Singapur
Ver mapa

¿Qué aprendes en este curso?

Risk Management
IT risk
Options Trading
MS Excel
Quant analysts
Excel work
Volatility swaps
Stochastic Vol


Day One

Lessons from BSM
  • Reading it as Black
    - Simpler formulas, lessons for hedging instruments
  • Reading it as a book maker
    - Link to prop trading
  • Reading it as Einstein 1905
    - Link expectation pricing to random walk
  • The cost of dynamic hedging
  • Theta / gamma ratio: the meaning
  • Multiple meanings of “volatility trading”
  • Estimating P&L Rules of thumb
  • Thoughts on Greeks
    - Which Theta? (Part 1)
    - The general behaviour of Greeks
    - Higher order greeks: Vanna, Volga
    - Comments on Dv01 and related
Workshop: Probability and option pricing
  • Pricing options from probability
  • Extracting probability from market options prices
  • What’s the delta?
  • Excel work
Adjusting BSM Introducing some real market effects into “normality”
  • Uncertainty of P&L
  • Re hedging frequency impact on P&L – rule of thumb
  • Transaction costs and bid/ask – rule of thumb
  • When to re hedge? Different delta hedging strategies
  • Relevance for bid/ask spread, portfolio effects, market making
Workshop: P&L of dynamic delta hedging simulations
  • Excel work on the previous section
Breaking BSM Introducing non normality
  • Non normality: good or bad?
    - Non constant vol, Stochastic Vol
    - Non normal log returns
    - Jumps
    - Feedback loops
  • Gamma feedback loops and Pin Risk
  • The shape of market implied probabilities
    - Reading from the volsurface
  • The realized log returns probabilities
    - Skewness and fat tails
    - Which distribution fits?
    - IID? Central Limit Theorem: the old and the new
  • Thoughts and consequences of non normality
    - Implications for P&L
    - Comparing realized to implied probabilities
    - Prop trading, static hedging and delta hedging
Workshop: Non normal probability distributions and jumps
  • Pricing options under non normal distribution
    - Linking skewness to volsurface skew
    - Linking kurtosis to volsurface smile
    - Approximate formulas
  • Excel work
Workshop: Non constant volatility
  • From non constant vol to non normal probability distribution
    - Linking spot to vol correlation to distribution skewness
    - Linking vol vol to distribution kurtosis
    - Pricing options under non constant vol
  • Linking spot to vol correlation to volsurface skew
  • Linking vol vol to volsurface smile
  • Excel work
Workshop: P&L of dynamic delta hedging Simulations Part 2
  • Non constant vol effects on PL
  • Jump effects on PL? Maybe not
  • Feedback loop effects on PL
  • Excel work
The Volatility Surface Part 1: Accounting for non normality
  • Why a volsurface? What are the alternatives?
  • Summary of the reasons and drivers
  • The shape factors
    - Skew, Smile, Wings, Termstructure
    - Measuring them
    - Heuristic observations and behaviour
    - Different regimes and trading ranges of the factors
  • From Vega to Volsurface risk
    - Calculating skew and smile exposures
    - Reporting Vega by buckets
    - Pitfalls
    - Comparison to Volga and Vanna
    - Link to exotics
  • The dynamics
    - Stickiness and other modes
    - Realized dynamics
    - Effect of different dynamics on delta
    - Three ways to trade skew
    - Other volsurface plays
Examples: Studying and aggregating risks in vanilla portfolios

Day Two

Interlude: Model independent early exercise for American options
Case study: from vanilla portfolios trading to model independence
  • Reducing the hedging error when trading realized vol with vanillas
  • The famous “log portfolio” vs. less famous portfolios
  • Comparison to variance swaps, volatility swaps, VIX, etc.
Case study: “Black Swan” hedging
  • Comparing different instruments
    - OTM puts and put spreads
    - Variance swaps plus vanillas combinations
    - “Crash puts” and daily cliquets
    - Best of puts
    - VIX options?
  • Highlighting differences
  • Estimating value vs. typical market prices
Day Three

Not so simple: dividends, repos and discount factors
  • What’s the right discount factor?
  • One or two yield curves?
Case study: “Collateral Damage” – the Warren Buffett puts
  • Rule of thumb to price the correlation spot to CDS
  • Dividends (what makes equity derivatives harder than forex)
    - Absolute, proportional, mixture
            - Effects on deltas
            - Effects on volsurface
            - American vs. European quasi arbs
            - Consequences for volsurface representation and interpolation
            - Impact on variance swaps
    - Impact on European / American / Exotics
    - Why everybody uses non consistent dividend models in practice
    - Avoiding rookie mistakes
            - Same strike, different vols?
Case study: Dividend Risk – Blowing up on dividends in 2008
  • The spot to div feedback loop and what drives it
  • The market flows that drive implied dividends, impact of exotics and variance swaps
  • Hedging
  • Measurements
    - Repos aka Borrow costs
            - Going Japanese? Negative repos
            - Markets flows
            - Impact on long term derivatives and structured products
            - Is there an arb? How?
            - Delta effects
            - Consideration on structured products hedging
            - Test Skew, Smile, Wings, Termstructure
            - Measuring them
            - Heuristic observations and behaviour
            - Different regimes and trading ranges of the factors
Workshop: Calculating the “put floor” for volsurface from credit risk

What we learn from free lunches and quasi arbs
  • Volsurface skew: the simplest free lunch
  • Why sticky strike is arbitrageable
  • Why sticky moneyness is no better
  • Thoughts and consequences
    - Delta and theta are wrong
    - Using delta to hedge vega?
    - The need for stochastic vol
Quick review of volatility models from a vanilla trader point of view
  • Just the essentials... why they matter
  • Local Vol – e.g. Dupire, Derman Kani
  • Stochastic Vol – e.g. Heston, SABR
  • Stochastic Local – The future?
  • Others?
  • Thoughts and practical consequences
What’s my Delta? What’s my Theta?
  • Why and to whom VolSurface dynamics matter
  • Different approaches to correcting the delta
    - Sticky strike, sticky moneyness delta
    - “Skew delta”, “Shadow delta”, “Swimming delta”, etc.
    - LV delta, SV delta
    - “Beta” delta
    - Minimum variance delta
    - What to do with theta?
    - Examples, comments and current practices
Workshop: Calculating delta with different dynamics

The Volatility Surface Part 2
  • Far OTM: the wings
    - Why they matter
    - Empirical evidence
    - Theoretical asymptotics
    - Can we learn from variance swaps prices?
  • The representation dilemma
    - Parameterization, interpolation or grid of numbers?
    - Pros and cons of each one
    - Which vol? Implied or local?
  • Consequences for stress reports and risk management
  • The extrapolation issue
  • Different tools for different needs: pros and cons
  • The pitfalls of a non parametric volsurface
  • The x axis: F/K? Delta? Others?
  • Global vs. timeslices: pros and cons
  • Review and comments on existing ones:
    - Well known parametric volsurfaces
            - SVI
            - SABR
            - Heston
            - Assorted polynomials, NIGs, etc
    - Less well known ones
            - Cost based, Carr Wu style
            - Global and/or proprietary
  • Relative value vol trading: the problem of comparing volsurfaces
Building volsurfaces from scratch
  • Similar problems:
    - The illiquid surfaces with just a few quotes
    - Extrapolating beyond the last liquid maturity
  • What goes in the shape, what goes in the bid/ask
  • Review of the approaches available
  • Analysis of past data
  • Derivation from liquid surfaces
  • “Breakeven skews” analysis
  • Other considerations
    - Basketization thoughts
    - Total Return vs. Price Return
    - The Credit Put Floor
    - Leland
Este curso está en español. Traducir al inglés