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Introduction to Options: Recap of Theoretical Basics
Pricing Models for Standard Options
Normal and log-normal distributions
Risk-neutral probabilities
Brownian motion
Practical approach of Black & Scholes
Demonstrating Black & Scholes : Itô lemma
Option pricing models and their limitations
Call / put parity
Managing the sensitivities of standard options
Calculating the Greeks: delta, gamma, vega/kappa, theta
Reviewing Pricing Features
Formulas
Computing sensitivities for the following products: short-term and long-term interest-rate futures options, caps/floors, swaptions, forex options, equity options
Practical workshop
Build a standard option pricer in EXCEL™
Factor sensitivities in the pricing spreadsheet
Delta and delta-gamma neutral portfolio
Introduction to volatility cube and smiles
Flat volatility and forward volatility
Analysing the volatility smile and volatility surface
Practical workshop
Construction in EXCEL™ of a cap pricing spreadsheet using flat and forward volatilities
Introduction to Pricing Models for Exotic Options
Analytical formulas
Tree pricing
Monte Carlo pricing principle
Application to different exotic options
Practical workshop
Price an option via the construction of a binomial tree in EXCEL™
Factoring Options in the Calculation of VAR (Value At Risk)
General points about Value at Risk
Parametric (RISKMETRICS™) and historical approach
Applying the parametric and historical approach to vanilla and digital options
