OPTIONS PRICING 1
PROGRAM OUTLINE
This is a BASIC class extending from the options basics and strategies class. Firstly we will cover a relative bail pricing relationship between call and put options that was successfully traded in the early 1980s by a Chicago trading firm (it all tastes like chicken). This has subsequently been renamed by academics as ‘put-call-parity’.
Secondly, we will practice options in the theoretical worlds using a basic educational model. This model will be referred back to when covering advanced pricing models and risk measures.
This is not a mathematics class and we will not cover the famous Black-Scholes (BS) pricing formula. However, anyone wanting to fully understand BS would be advised to attend this class.
PRE-REQUISTES
An awareness of options and option graphs from a course such as option basics and strategies in this series is advised. They should also know what ‘probability distribution’ and ‘present value’ means.
CONTENT
Arbitrage-free relationships (put-call-parity)
• Cashflows on the arbitrage trade
• how to make the trade arbitrage free
• The (un)necessary evil-formulae(easy)
Theoretical valuation
• Introduction to a basic probability distribution
• Calculating option-values based on expected values
• Moneyness
• ‘Forward value’ and ‘uncertainty value’
• Put-call-parity revisited
COURSE DURATION
This class is offered in four separate half-day units that run concurrently. These can be taken separately but there are themes that run through the units.
WHO SHOULD TAKE THIS COURSE?
This class is aimed at staff and clients who are or intend to be working with options. The ideas in this class will be built on via the following classed in this series: option Greeks, valuations 1 and valuation 2
MODULES
These courses are included in this module
STRUCTURED PRODUCTS BASICS
Understand why investors may choose to buy various types of structured products. Understand how a bank provides products with structured payoffs.
GET STARTEDOPTION GREEKS
In this class we will examine each of the common Greeks in detail and describe hot is is used to manage and hedge option risk.
LEARN MOREVOLATILITY DERIVATIVES
To understand the ways to trade volatility and in particular to understand the mechanics and uses of variance swaps.
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