Equity Derivatives

Overview

The goal of the course is to provide a comprehensive overview of the main equity derivatives. The emphasis is on understanding how the instruments function, their applications, pricing mechanisms and risk management approaches.

Learning Objectives

On completion, delegates will understand the key features, uses, risks, pricing and risk management of the main equity derivative instruments, and how they are regulated.

Agenda

Introduction

• Defining derivatives
• Key characteristics and differences from underlying "cash" instruments
• Deferred settlement and partial funding

The Instruments

• Forwards and futures — delta-one product similarities; equity forwards with key terms and applications; long and short positioning; leverage versus hedging; pricing, hedging, hedge ratios, funding costs, dividends, shorting and fees; equity index futures (contract specifications, expiry, cash settlement); pricing theory and practice with ETF linkages; basis mechanics and erosion to expiry; clearing house requirements for variation and initial margin
• Contracts for Difference (CFDs) — individual stocks and indices specifications; tax advantages; hedging and pricing strategies
• Equity swaps — contract mechanics, two-leg structure and applications; strategic and tactical switching applications; pricing and hedging variations (price-only, FX-quantoed formats)
• Options — strike, term and style specifications (American and European); call and put payoffs, moneyness concepts; applications (hedging, income generation via covered calls, collars); time value and intrinsic value dynamics; volatility types (historic and implied), VIX strategies; key risks (gamma, delta, vega, theta, rho); exotic options (Asian, Barrier, Digital structures)