Standard and Exotic Interest Rate Options: Advanced Pricing and Book Management Techniques

LEVEL: ADVANCED LEVEL

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▪	Price standard options and the main
▪	exotic options
▪	Calculate the different sensitivities:
▪	delta, gamma, theta, vega
▪	Build in EXCEL™ a pricing spreadsheet
▪	and calculate sensitivities for standard
▪	and exotic options

▪	Pricing standard interest rate options - Advanced
▪	Sensitivities of standard options (Greeks) - Advanced
▪	Smile and sensitivities - Advanced
▪	Pricing and sensitivities of American, Bermudan, Digital, Cap spread, CMS, and Quanto options - Intermediate
▪	EDP, Monte-Carlo - Intermediate

▪	Price the main interest rate options,
▪	using EXCEL™
▪	Calculate sensitivities and apply book
▪	management techniques
▪	Assimilate techniques used by interest rate options market-makers
▪	Detailed analysis of new sensitivity parameters related to the book management of smile and volatility

▪	Fixed-income fund managers
▪	Junior traders
▪	Derivatives senior sales
▪	Bond origination and primary market professionals
▪	Finance departments
▪	Risk managers
▪	Support staff: IT, middle office, audit,
▪	senior back office, internal controls
▪	Financial engineers

Principles of option pricing
▪	First steps: Brown, Bachelier, Merton
▪	Brownian motion and modelling of Brownian motion
▪	Black & Scholes assumptions
▪	Black & Scholes model
▪	Black & Scholes 76 to value options on futures
▪	Practical workshop . Build a Black & Scoles pricing spreadsheet in ExcelTM
▪	Modelling and calculating the Greeks
▪	Second derivatives: gamma, vanna, volga
▪	Managing the short- and long-end of options' portfolios
Options in the OTC Market
▪	Yield curve analysis
▪	Applying the Black & Scholes model to caps/floors and swaptions
▪	Calculating and analysing sensitivities
▪	Practical workshop . Set up an EXCEL™ pricing spreadsheet for caps, floors and swaptions
▪	Notion of variability
▪	Limits of models: normal and lognormal laws
▪	Smile, skew and kurtosis
▪	Presentation and calibration of the SABR model
▪	Caps/floors: flat and forward volatilities
▪	Managing an options' book
Pricing and Sensitivities of Exotic Options
▪	Digitals: pricing and replication
▪	Quanto (swaps and options)
▪	CMS (swaps and options): convexity adjustment and pricing with replication
▪	Steepener, Ratchet
▪	American: American futures options, Bermudan
▪	Path dependent options
▪	Practical workshop . Monte-Carlo simulation (examples using EXCEL™)
▪	Spread options
▪	Latest exotic products