Derivatives (2235.YR.006709.1)

General information

Type:	OPT	Curs:	3	Period:	S semester
ECTS Credits:	4 ECTS

Teaching Staff:

Group	Teacher	Department	Language
Year 3	Jacob Albo Sánchez	Economía, Finanzas y Contabilidad	ENG

Banks and other financial institutions increasingly use derivatives to trade and transfer risk. Extreme volatility in the financial system has led to an increase in trading opportunities and derivatives are the preferred products to take advantage of these opportunities. Managing risk is also a key area in which financial institutions are focusing recourses. Derivative products are used to manage risk, and strategies involving derivatives are being developed to adapt to changing business conditions. The aim of this course is to provide you with a strong understanding of derivative markets and the main types of products traded within them. The course will focus on forwards, futures, options and swaps related to interest rate, foreign exchange, equity and commodity markets. Student will learn how instruments are priced, how they are traded and how they are used to generate profits and hedge financial risks.

The course combines lectures, exercises and real life case studies. We balance theory and practice by examining the valuation of derivative products and then applying strategies to trading scenarios and risk management decisions in the workplace.

A learning area will be available in the intranet, where you will find the relevant course materials, communications, bibliography, etc.

1. Session 1 -Active management of financial risk: how to manage volatility and uncertainty. -Market operations: forward transactions versus spot transactions. -Exchange traded products (ETP) versus over-the-counter products (OTC). -Futures market: contract specifications. Leverage and amplification factor. -Speculation: long and short positions for trading markerts.

2. Session 2 -Hedging risks using futures contracts: the case for commodity and equity markets. -Hedge ratio; calculations implied in the hedging process. -Arbitrage opportunities: theoretical value of a futures contract (basis trading). Contango and backwardation.

3. Session 3 -Forecasting tools: technical analysis explained. -Designing a trading model: "trading for a living".

4. Session 4 -Options market. -Plain vanilla strategies: long/short positions on call/put options -Risk/reward of each strategy -Introduction to options valuation: intrinsic and time value; time decay. -Black&Scholes and more advanced models. Using and options calculator. -The Greeks: delta, vega, theta and rho.

5. Session 5 -The currency market. -Hedging foreign exchange risk: export and import. -Using FX derivatives: forwards, futures and options.

6. Session 6 -The interest rate markets. -Calculating forward rates. -Hedging interest rate risk: borrowing and lending. -Using IR derivatives: FRA's.

7. Session 7 -Using IR derivatives: SWAP, options (caps, collars and floors).

8. Session 8 -Other derivative strategies. -Hedge fund strategies using derivatives. -Popular complex strategies (volatility trades): strangle, straddle, butterfly, ...

9. Session 9 Introduction to structured products: how they are designed. -Practical example 1: capital protected products linked to equity index. -Practical example 2: reverse convertible on stocks.

10. Session 10 -Final exam. -Final presentation. -Case study: speculation, hedging and arbitrage exercises.

The course combines lectures, exercises and real life case studies. We balance theory and practice by examing the valuation of derivative products and then applying strategies to trading scenarios and risk management decisions in the workplace.

-Lectures presentations.

-Activities documents.

-Options, Futures, & Other Derivatives; John Hull.

-The futures game, who wins, who losses, why. Richard Teweles; McGraw Hill.

-Options, essential concepts and trading strategies; The Options Institute; Chicago Board Options Exchange (CBOE).

-Option Volatility & Pricing: advanced Trading Strategies and Techniques; Sheldon Natenberg; Probus.

-When Genius Failed: The Rise and Fall of Long-Term Capital Management; Roger Lowenstein; Random House.

-Principles of Corporate Finance; Richard Brealey, Stewart Myers, Marcus Alan; McGraw Hill.

Group	Teacher	Department
Year 3	Jacob Albo Sánchez	Economía, Finanzas y Contabilidad