Introduction

Derivatives and financial instruments are critical components of modern financial markets. They allow businesses, investors, and institutions to hedge risks, speculate on market movements, and manage exposure to various financial risks. This 5-day course offers an in-depth understanding of derivatives such as options, futures, swaps, and other financial instruments. By the end of the course, participants will be able to understand the mechanics of derivatives, how they are used in financial markets, and how to apply them effectively for risk management and trading strategies.

Course Objectives

• Understand the basic principles of derivatives and their role in financial markets.
• Learn about different types of derivatives: futures, options, forwards, swaps, and structured products.
• Gain knowledge of how derivatives can be used for hedging, speculating, and arbitrage.
• Develop the ability to price and value different financial instruments.
• Understand the risks associated with derivatives and how to manage them.
• Learn how financial institutions, corporations, and investors use derivatives for strategic financial decision-making.

Who Should Attend?

• Finance professionals, risk managers, and traders looking to enhance their knowledge of derivatives and financial instruments.
• Investment managers, corporate treasurers, and financial analysts involved in trading or risk management.
• Students or professionals pursuing careers in financial markets, investment banking, or financial services.
• Anyone interested in learning how to use derivatives and financial instruments for investment, risk hedging, and speculation.

Day 1: Introduction to Derivatives and Financial Instruments

• Session 1: What Are Derivatives?
  • Definition of derivatives and their role in financial markets
  • The relationship between derivatives and underlying assets: equities, bonds, commodities, and currencies
  • Types of derivatives: futures, forwards, options, and swaps
  • The use of derivatives for hedging, speculation, and arbitrage
• Session 2: Understanding the Mechanics of Derivatives
  • The concept of leverage in derivatives
  • How derivatives are traded: over-the-counter (OTC) vs. exchange-traded derivatives
  • The role of brokers and clearinghouses in the derivatives market
  • Derivatives terminology: notional value, contract size, and settlement
• Session 3: Financial Instruments Overview
  • Overview of traditional financial instruments: stocks, bonds, and loans
  • The development of structured products and hybrid instruments
  • The growing role of ETFs, REITs, and securitized products in modern finance

Day 2: Futures and Forwards

• Session 1: Futures Contracts
  • Introduction to futures contracts: standardized agreements to buy or sell assets at a future date
  • How futures contracts are traded on exchanges (CME, ICE, etc.)
  • Hedging with futures: managing price risk for commodities, currencies, and interest rates
  • Pricing of futures contracts and the concept of margin requirements
• Session 2: Forwards Contracts
  • Understanding forward contracts: customized agreements traded OTC
  • Differences between futures and forwards in terms of flexibility and liquidity
  • Applications of forward contracts in hedging currency and commodity price risks
  • Counterparty risk in forward contracts
• Session 3: Practical Applications of Futures and Forwards
  • Case studies on using futures for hedging and speculation in different asset classes (commodities, equities, etc.)
  • Example of using forward contracts to hedge foreign exchange risk for international transactions
  • Understanding settlement and delivery mechanisms for futures and forwards

Day 3: Options and Their Uses

• Session 1: Understanding Options
  • Introduction to options: call and put options, strike price, and expiration date
  • The mechanics of options: rights, not obligations, to buy or sell underlying assets
  • The basic structure of options contracts and how they are traded
• Session 2: Option Pricing and Strategies
  • Introduction to option pricing models: Black-Scholes model for European options
  • Factors affecting option pricing: intrinsic value, time value, volatility, and interest rates
  • Option strategies: buying calls, buying puts, covered calls, protective puts, and spreads
• Session 3: Advanced Option Strategies
  • Using options for hedging and risk management: portfolio protection and risk adjustment
  • Complex option strategies: straddles, strangles, and iron condors
  • Application of options for speculation and arbitrage opportunities
  • Real-world examples of options trading strategies

Day 4: Swaps and Structured Products

• Session 1: Introduction to Swaps
  • What are swaps? Definition and types of swaps: interest rate swaps, currency swaps, and commodity swaps
  • How swaps are used for hedging interest rate and currency risks
  • Understanding swap markets and their role in financial institutions
  • Valuing swaps: the role of fixed vs. floating rates and the calculation of net cash flows
• Session 2: Interest Rate Swaps and Currency Swaps
  • How interest rate swaps help businesses manage exposure to fluctuating interest rates
  • Understanding currency swaps and their use in managing exchange rate risk for multinational corporations
  • Practical examples of interest rate swaps and currency swaps in financial markets
• Session 3: Structured Products and Hybrid Instruments
  • Introduction to structured products: collateralized debt obligations (CDOs), asset-backed securities (ABS), and convertible bonds
  • Understanding how these products combine traditional financial instruments and derivatives
  • Risks and rewards of structured products: credit risk, liquidity risk, and market risk
  • How structured products are used for customized risk-return profiles

Day 5: Risk Management and Regulatory Framework

• Session 1: Risk Management in Derivatives
  • Understanding the types of risks in derivatives: market risk, counterparty risk, liquidity risk, and operational risk
  • Techniques for managing derivative risk: diversification, margining, and risk limits
  • The role of risk management frameworks: Value at Risk (VaR), stress testing, and scenario analysis
• Session 2: Regulatory Environment for Derivatives
  • Overview of the regulatory framework for derivatives markets: Dodd-Frank Act, EMIR, MiFID II
  • The role of clearinghouses and central counterparties (CCPs) in mitigating counterparty risk
  • Global regulatory standards for trading derivatives: reporting, margin requirements, and transparency
• Session 3: Derivatives in a Post-Crisis World
  • The impact of the 2008 financial crisis on the derivatives market and regulation
  • Current trends in the derivatives market: central clearing, collateral management, and regulatory reforms
  • The future of derivatives trading: the role of fintech, blockchain, and digital derivatives

Course Conclusion

• Recap of Key Learnings
• Interactive Q&A Session
• Certification of Completion
• Networking Opportunity