The primary objectives of this warm-up seminar is to give the participants a general introduction to financial derivatives and a general understanding of the mechanics and uses of these instruments for trading and risk management purposes. The seminar is targeted towards those who wish to extract maximum value from participation in the subsequent, more advanced course "Financial Derivatives – Instruments, Mechanics and Markets".
We shall start with a general introduction to financial derivates, explaining what they are and discussing their advantages, disadvantages and possible applications. We will describe the basic "mechanics" of the instruments, illustrated by pay-off, P&L and time profile diagrams, and we present a "glossary" of important terms.
We will then look in more detail into the markets for listed and OTC instruments. We explain the general mechanics and uses of futures, options, FRAs, forwards, interest rate options and credit derivatives. We also describe how the instruments are traded and settled, and we give an overview and simple examples of their applications.
Finally, we give an overview of the risks of using financial derivatives. We briefly explain how these risks can be identified, measured and managed, and we discuss reporting and management requirements. We also give an overview of the regulatory treatment of derivative instruments under Basel II and other frameworks.