Introduction to Derivatives

This course introduces participants to derivatives. It looks at how they are used and their key characteristics and features. It 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. It looks at the way counterparty risk is mitigated for exchange traded derivatives by using a central counterparty. It explains the factors that go into determining the price of an option, and the sensitivity of the option price to changes in these values.


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 & contract codes
‐ Payoff profile

Trading Futures
‐ Participants & 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 & open interest

Basics of Options
‐ Call & put options
‐ Strike, premium, rights & exercising options
‐ The four vanilla payoff diagrams

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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