Introduction to Derivatives

This course introduces participants to derivatives.

It first looks at how they are used and their key characteristics and features and then compares Over The Counter (OTC) and exchange traded derivatives. In each case it explains the pay-off profile, illustrating the potential profit and loss for the derivative based on the value of the underlying financial instrument on which it is based.

The course looks at the way counterparty risk is mitigated for exchange traded derivatives by using a central counterparty, and further, explains the factors that go into determining the price of an option, and the sensitivity of the option price to changes in these values.

Suitability

This course is for individuals with a basic knowledge of financial markets.

Learning Outcomes

At the end of this course delegates should understand:

  • The basic characteristics of swaps, forwards, futures and options
  • How futures are traded and settled
  • The basics of option pricing

Course Content

  • Basics of derivatives
  • Key characteristics and uses of derivatives
  • Exchange traded vs. over-the-counter (OTC)
  • Basics of futures
  • Key characteristics and contract codes
  • Payoff profile
  • Trading futures
  • Participants and cash flows during contract life
  • Central Counterparty (CCP), fees and margin

Exercises: Calculating initial margin requirements

  • Futures delivery
  • Delivery date events
  • Cash VS physical settlement
  • Rolling positions, volumes and open interest
  • Basics of options
  • Call and put options
  • Strike, premium, rights and exercising options
  • The four vanilla payoff diagram

Exercises: Plotting payoff profiles and the put-call parity

  • Option pricing
  • Valuing future uncertainty
  • Quick approximation to Black-Scholes

Exercises: Understanding an option pricing model inputs and the Greeks

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Why study with Alpha?

Innovation and creativity born from experience

We are thought leaders in instructional and learning journey design and holistic solution architects. We have extensive finance and investments experience combined with skills application to deliver performance improving results. We develop immersive learning environments that maximize time to productivity, support talent retention and added value to improving quality of hires.

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We are focused on mining the embedded organisational intellectual capital for the benefit of the next generation. We create and curate best in class practice gathered from our experience with the leading financial institutions. We design our programmes with the end in mind – what results are you trying to achieve with this intervention? What metrics will we set ourselves to achieve that?

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Quality and innovation, using current market and industry best practices, have made us a trusted partner in delivering dynamic and motivating training for the financial and capital markets. Our programmes are generation proof and responsive to evolving learner needs and styles. Our solutions use a multi-stakeholder engagement strategy that expands beyond relationships between the learner and learning provider. We create connections with managers, peers and the wider business to drive impactful return on investment..

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