The purpose of this seminar is to give you an in-depth understanding of the risk-return characteristics of futures and options and of the practical uses of futures and options in trading and risk management.
We start with an introduction to futures and options markets. We define the instruments, give an overview of markets and instruments, and we explain how futures and options are traded, settled and cleared on important exchanges such as the CME and Eurex.
We then explain in more detail how futures and options are priced. A number of important valuation models will be presented and explained, including the Cost-of-Carry model (for futures), and the Black-Scholes, Black, Garman-Kohlhagen, Cox-Ross-Rubinstein and Black-Derman-Toy (BDT) models (for options). We also look briefly at the pricing of non-financial contract types such as commodity, weather, energy and macro futures.
Further, we explain how the important risk measures such as delta, gamma, vega, rho, theta etc. are derived from these models and how these key ratios should be properly interpreted.
Having gained a good understanding of the risk/return characteristics of futures and options, we then proceed to present and discuss a number of trading strategies with futures and options. These include "open position" strategies, "spread" strategies, "bull" and "bear" strategies, and different volatility strategies with options. We also explain how to use "VIX" futures and other volatility contracts to trade volatility. These strategies will be illustrated in depth using real-life data and computer simulations.
Next, we explain how futures and options can be effectively used to hedge interest rate, FX, equity, commodity and energy risk. We give examples of simple 1:1 hedges, but also more complex portfolio hedging and ratio hedging strategies will be examined in full detail.
Finally, we explain how market-maker positions can be hedged using various techniques, including delta-hedging and risk transferring through structured products.
