Financial Derivatives  Instruments, Mechanics and Markets
Duration: 2 days
 Futures and Options
 Forward Rate Agreements
 Interest Rate and Currency Swaps
 Interest Rate and Currency Options
 Credit Derivatives
 Exotic Options
 Risk Management, Reporting and Regulation
The objective of this seminar is to give you a good understanding of financial derivative markets
and instruments and of the “mechanics” and applications of these instruments.
We start with an overview of derivatives and derivative markets and we explain the main
characteristics of derivative instruments. We also explain the important differences in terms of
liquidity, flexibility and counterparty risks between the two “market forms”, listed and OTC, and
we discuss the institutional and regulatory changes in the aftermath of the global financial
crisis.
We then introduce and explain in turn the different types of instruments. We first look at futures
and options. We define the instruments and we explain how they are traded and settled. We explain
thoroughly how the instruments are priced using standard pricing models such as “costofcarry” for
futures and the “blackscholes” and numerical models for options. We also show how to calculate
important risk analytics such as delta, gamma, vega, theta and rho, and we explain how these
analytics should be interpreted.
We then introduce Interest Rate Swaps, FX forwards and Currency Swaps. In each case, we explain
their time profiles, cash flows and trading and settlement mechanisms. We show how these
instruments can be priced and valued using yield curves, discount factors and FX rates, and we
explain how to assess their risks. We also present and analyze Caps, Floors, Swaptions and other
types of interest rate options.
Further, we introduce and explain the mechanics of credit derivatives such as “credit default
swaps”, “total return swaps” and credit options. We also present and analyze a number of exotic
derivatives such as Asian options, lookback options, barrier options, digital options and compound
options. We explain the payoff profiles of these options, and we give examples of their
applications in trading, investing and risk management.
Finally, we explain how the risks of using derivatives can be measured and managed, and we discuss
the (changing) regulatory requirements for using these instruments in banks, pension funds,
investment funds and other institutions.
Day One
09.00  09.15 Welcome and Introduction
09.15  12.00 Introduction and Overview
 Key Characteristics of Derivative Instruments
 Types and Markets
 Market Developments after the Crisis
Futures and Options
 Review of the Mechanics of Futures and Options

Valuation and Risk Assessment of Futures
 Fair Futures Price and Implied Repo Rate
 The Delivery Option and the CTD Bond
 Sensitivity and Risk Analysis

Valuation and Risk Assessment of Options
 Option Pricing Models
 Option Price Sensitivities (“Greeks”)
 Computer Simulations
12.00  13.00 Lunch
13.00  16.30 Futures and Options (Continued)

Examples of Applications of Futures and Options
 Trading Strategies
 Hedging Interest Rate Risk, FX Risk and Equity Risk
 Small Exercises
Swaps
 Quick Review of Swaps Basics
 Pricing and Risk Assessment of Interest Rate Swaps
 Pricing and Risk Assessment of Currency Swaps

Examples of NonGeneric Swaps
 Accreting and Amortizing Swaps
 Forward Starting and Arrears Reset Swaps
 Constant Maturity Swaps
 Overnight Index Swaps
 Examples of Applications of Interest Rate and Currency Swaps
 Small Exercises
Day Two
09.00  09.15 Recap
09.15  12.00 Interest Rate Options
 Interest Rate Guarantees, Caps, Floors and Collars
 Swaptions
 Cancellation and Extendable Swaps
 Examples of Applications of Interest Rate Options
 Exercises
Credit Derivatives
 Credit Default Swaps
 Total Return Swaps
 Credit Spread Options

Applications of Credit Derivatives
 Buying and Selling Credit Risk
 Hedging Against Spread Changes
 Small Exercises
12.00  13.00 Lunch
13.00  16.30 Exotic Options
 Asian (Average Rate) Options
 Lookback and Touch Option
 Digital Options and Barrier Options
 Basket Options and Compound Options
 Rainbow Options
 Examples of Applications
Risk Management, Reporting and Regulation
 Risks of Using Derivatives
 Regulatory Requirements for Using Derivatives in Banks, Investment Funds, Pension Funds
etc.
 Measuring and Managing Market and Counterparty Risk of Derivatives
 Internal and External Reporting
 Discussion: Regulatory Developments in Derivative Markets
Evaluation and Termination of the Seminar
