The course begins by unraveling the concept of Options Moneyness, exploring the intricacies of Time Value and Intrinsic Value, and delving into the factors influencing option value.

US$129 per 365 days


What are Options:

Options are among the most useful and versatile instruments in the world of finance. But let’s begin by explaining the basic premise of options using a nonfinancial example.

Imagine you are an ice cream producer. Your earnings will be related to the weather – in hot weather, you would expect to sell far more ice cream. But what if the weather is cold? How will you pay your bills? One solution would be to buy an option so that you could receive a payment in the event of poor weather. If the weather turned out to be good, your option would simply expire.

This example isn't far-fetched – a market for weather derivatives has existed since the first trade was done by the infamous Enron in 1997. As the example shows, options give the holder the right, but not the obligation, to enter into a transaction at some point in the future (at a predetermined “exercise” or “strike” price). The holder has the right to execute the transaction if things look good, but can simply walk away if the transaction isn't profitable. For this “right,” the holder pays a premium to the option seller or writer.

Why it is important:

Options are one of the basic building blocks in finance. A combination of options with other products allows almost infinite customization possibilities. The use of options exponentially increases the flexibility available to hedgers, investors, traders, and speculators.

However, while the basic concept of an option is straightforward, other topics associated with options are less so. Option valuation, for instance, can be (ultimately) a very complex process. Considerations include the option pricing factors, how an option pays out, the market processes of underlying assets, and the relationships between multiple assets. It's at this point that the subject enters the esoteric realms of advanced mathematics. Similarly, various option trading strategies can be individually tailored to reflect particular market views. But more complicated market views require the implementation of more complex strategies.

What will you learn:

  1. Time value and intrinsic value
  2. Price boundaries
  3. Price drift and randomness
  4. Future asset price path
  5. The riskless portfolio
  6. Black Scholes option pricing model
  7. Black Scholes Extensions Garman-Kohlhagen and black models
  8. The Binomial option pricing model
  9. Extensions to basic numerical methods
  10. Option pricing Monte Carlo simulation
  11. Option trading basic strategies, conversions, reversals, and box-spreads
  12. Hedging Issues
  13. Option risk management
  14. Future asset price and volatility – Excel in finance

Target audience:

Recruits to institutions with derivatives operations, risk managers, research staff, portfolio and money managers, sales and marketing executives, operations, and support staff looking to further their derivatives product knowledge, compliance professionals.

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