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Advanced Currency Options

Duration: 2 days
  • Introduction to Currency Options
  • Valuation of Currency Options
  • Volatility Analysis
  • Numerical Procedures and Simulation Methods
  • Exotic Currency Options
  • Advanced Risk Analysis
  • Trading Strategies and Market Arbitrages
  • Effective Risk Management Applications
At this advanced-level course, we shall present and analyse a number of advanced currency option structures. We start with a general introduction to currency options, and explain how "vanilla" and "cross rate" options are valued. We then establish analytic pricing formulas (such as the Garman-Kolhagen) as well as numerical procedures (such as the CRR tree) and simulation methods for valuation of more advanced options. We shall present and analyse a number of "exotic" currency options such as Asian, lookback, barrier, basket, compound, ladder and rainbow options, in each explaining how they are priced and hedged, and how the "greeks" are calculated and interpreted. Further, we present some advanced trading strategies and market arbitrage strategies using these options. Finally, we shall present and discuss ways of effectively managing the risk of currency options positions.

Day One

09.00 - 12.00  Currency Option Basics

  • Definitions and Mechanics
  • Overview of the Currency Options Markets
    • Listed options
    • OTC markets
  • Vanilla Options
  • Cross Rate Options
  • Applications

Pricing of Currency Options

  • Forward FX Rates
  • Volatility and Correlation Forecasting
  • The Garman-Kolhagen Model
  • The CRR Model
  • Pricing Vanilla and Cross Rate Options
  • The "Greeks" of Currency Options
    • Standard Greeks (delta, gamma, vega,...)
    • Advanced Greeks (speed, colour, charm,…)
  • Exercises

12.00 - 13.00  Lunch

13.00 - 16.30  Exotic Currency Options (I)

  • Introduction
    • What is an Exotic Option?
    • Types of Exotic Pay-offs
    • Applications for Exotic Currency Options
    • Modelling Pay-offs and Pricing
  • Average Rate (Asian) Options
  • Barrier Options
  • Look-Back and Look-Forward Options

Exotic Currency Options (II)

  • Euro-Digital Options
  • Touch Options
  • Contingent Premium Options
  • Exercises

Day Two

09.00 - 12.00  Exotic Currency Options (III)

  • Compound Options
  • Basket Options
  • Leveraged and curvi-linear options
  • Chooser Options
  • Embeddos
  • Rainbow Options
  • Balloon Options
  • Ladder Options
  • Quanto Options

Structured Currency Notes

  • Dual Currency and Reverse Dual Currency Notes
  • Dual Range Notes (EARNS on USD/EUR etc.)
  • Index Currency Options Notes
  • Principal Protected Currency Notes
  • Exercises

12.00 - 13.00  Lunch

13.00 - 16.30  Trading Strategies with Currency Options

  • The Trading Process
  • Exchange Rate Forecasting
  • Bull & Bear Strategies
  • Cross Currency Spread Trading
  • Ratio and Butterfly spread
  • Risk Reversals
  • Generating Additional Income from Foreign Assets
  • Advanced Exotic Trading Strategies

Effective Risk Management with Currency Options

  • Using Currency Options in Treasury Risk Management
  • The Hedging Process
    • Calculating FX exposure, choosing the right instrument, calculating the hedge ratio, implementing and monitoring the hedge

Evaluation and Termination of the Seminar