FX Exotic Options

Overview Teacher Outline Brochure Testimonials

This advanced three-day course covers the pricing, hedging and application of FX exotics for use in trading, risk management, financial engineering and structured products.

FX exotics are becoming increasingly commonplace in today’s capital markets. The objective of this workshop is to develop a solid understanding of the current exotic currency derivatives used in international treasury management. This will give participants the mathematical and practical background necessary to deal with all the products on the market.

All participants will receive a copy of the latest edition of Professor Wystup's reference book "FX Options and Structured Products", published by Wiley.

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Date:

Venue:
Central London and remotely via LFS Live

Fee:
£1300 per day
£3900 total

This course is also available in New York Time Zone and Singapore Time Zone

Who The Course is For

Quants/ Financial Engineers: To learn how the products are used
Traders: To deepen the technical background
Risk Managers: To understand the front-office way of thinking
Structurers: To learn more about pricing and models
Researchers: To understand the practical matters
Sales People: To get the overview of product development and smile adjustments

Prior Knowledge

This course is for anyone new to FX Exotics and those who need to bring their knowledge up to date and learn how the overall FX options market works. However, this is not a basic course on options and understanding of the FX vanilla options market and FX smile is essential to understand exotics.

The programme is also not a pure quantitative modelling seminar, but will provide the necessary mathematics you need to understand to be successful in FX Options.

Keep me updated about this course

Day One

Review of the Fundamentals

Fundamentals

Components of foreign exchange risk: forwards, swaps and vanilla options
FX options market: who does what and why
Software solutions: which vendor offers what - Fenics, SuperDerivatives, Bloomberg, Volmaster, Murex, ICY, Reuters

Pricing and Hedging in the Black-Scholes model

Black-Scholes / Merton model in FX
Derivation of the value of a call and put option
Detailed discussion of the formula
Greeks: delta, gamma, theta, rho, vega, vanna, volga, homogeneity and relationships among Greeks

Vanilla Options

Put-call parity, put-call symmetry, foreign domestic symmetry
Quotation conventions in FX, ATM and delta-conventions
Dates: trade day, premium payment day, exercise/expiration time, settlement day
Settlement, spreads, deal processing, counterparty risk
Exotic features: deferred payment, contingent payment, deferred delivery, cash-settlement, American and Bermudan exercise rights, cut-offs and fixings
Market Data: rates, forward points, swap points, spreads

Workshop: Acquaint yourself with pricing software and market quotes

Volatility

Implied vs. historic
Quotation in terms of deltas
Volatility cones
Volatility smile: term-structure, skew, risk reversals and butterflies
Volatility sources
Interpolation and extrapolation across the volatility smile surface: SABR, vanna-volga, Reiswich-Wystup
Forward volatility

Workshop: Build your own interpolation tool for volatility smile, calculate Greeks in terms of deltas, hedging volatility risk, deriving the strike from the delta with smile

Structuring with Vanilla Options

Risk reversal and participating forward
Spreads and seagulls
Straddles, strangles, butterflies, condors
Digital options

Workshop: Structure your own seagull. Include sales margin. Solve for zero-cost. Calculate delta and vega hedge. Discuss bid-ask spread. Analyze smile effect

Day Two

Structuring and Vanna-Volga-Pricing

First Generation Exotics: Products, Pricing and Hedging

Digital options: European and American style, single and double barrier
Barrier options: single and double, knock-in and knock-out, KIKOs, exotic barrier options
Compound and instalment
Asian options: options on the geometric, arithmetic and harmonic mean
Power, lookback, chooser, paylater

Workshop: Hedging a knock-out with a risk reversal. Build your own semi-static hedging tool, discuss forward volatility risk

Applications in Structuring

Dual currency and other FX-linked deposits
Structured forwards: shark forward, bonus forward, range-reset forward
FX-linked interest rate swaps and cross currency swaps
Exotic spot and forward trades

Workshop: Structuring exercises: build structures, solve for zero cost, smile adjustment, bid-ask spreads

Vanna-Volga Pricing

How higher order derivatives influence the price
Vanna-volga pricing approach
Case study: one-touch, one-touch moustache
Discussion of model risk and alternatives: stochastic volatility

Workshop: Pricing of barrier options with smile

Long Term FX Options (contributed usually by the Guest Speaker)

Development of Basis Spreads
Product Range, FX-linked bonds, long-term vanilla and PRDCs
Modelling approaches
Discussion of risk features and modelling requirements

Day Three

Second Generation Exotics, Pricing and Hedging issues

Overview of Market Models

Stochastic volatility models
Heston 93: model properties, calibrations, pricing, pros and cons
Local Volatility: properties, pros and cons
Stochastic Local Volatility Hybrid models

Super-Replication of barrier options: using leverage constraints and its first order approximation - the barrier shift. Mixing super-replication and vanna-volga

The Pedigree of Barrier and Touch Options

Workshop and Discussion: How to construct the universe of barrier and touch options from key building blocks: vanilla and one-touch. Residual risk and limitations. Static, semi-static and dynamic hedging approaches

Single Currency Exotics beyond Standard Barrier and Touch Options

Exotic features in (vanilla) options: deferred payment, contingent payment, deferred delivery, cash-settlement, American and Bermudan exercise rights, cut-offs and fixings
Exotic barrier and touch options
Faders, corridors, accumulative forwards, target redemption forwards (TRFs)
Forward start options, step-ups
Time options
Variance and Volatility Swaps

Workshop: Structure and price your own accumulative forward. Smile adjustment. Simulation tool for TRFs. Discussion of TRF hedging

Multi-Currency Exotics

Product overview with applications: quanto options, baskets, spreads, best-ofs, outside barriers
Correlation: implied correlations, correlation risk and hedging, currency triangles and tetrahedra
Pricing in Black-Scholes model: analytic, binomial trees and Monte Carlo

Workshop: Pricing and correlation hedging a two-currency best-of: calculate your own sensitivities and hedge vega and correlation risk

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Keep me updated about this course

It has been a pleasure to attend the course on FX Exotic Option held by Prof Wystup. He gave us a very well described picture of today's FX industry. During the course, he shared his ideas with great enthusiasm and clarity, giving us many examples to work on. One of the best teachers I met in my experience. LFS did a great job organizing this course.

(Quantitative Analyst - Mediobanca S.p.A.)

This 3-day training packs a lot of useful information in a dynamic format. Very cost-effective for an individual or team expanding their FX horizon.

(Senior Director Quant Risk - CME Group)

LFS is an excellent institution with a very high standard of tutors. I have completed two courses through LFS and would highly recommend them.

(Analyst - AMP Capital)

It was a great course delivered by a very knowledgeable professional. Highly recommend it to those in this field to attend.

(Assistant Manager - OCBC Bank)

The course was excellent and exceeded my expectations. I learned a great deal within the 3 days. The lecturer provided the participants with excellent notes, exercises, spreadsheets, his textbook and we have access to the LFS library so that we can build on everything we have learned at the course.[...]

(Quantitative Analyst - Standard Bank Group)

A deep travel in the sneaky FX world, from the theoretical traps to the practical examples. Extremely good professor

(Quantitative Analyst - Mediobanca)

"Professor Uwe Wystup delivered an interesting and market relevant course- he breaks down complex structures into their basic building blocks in order to develop hedging strategies."

(Market Risk - UBS AG)

"One of the best courses I've attended. Uwe has the practical, theoretical knowledge and the skill to teach."

(Director - Nordea)

Great course, relevant and practical

(Treasury Sales - Westpac Banking Corporation)

"FX Exotic Options is a hands-on course covering topics from vanilla FX options and smile construction to replication of exotic payoffs and implications for pricing and hedging. Uwe Wystup is an absolute authority on FX derivatives and presents the course extremely well. Highly recommended."

(Asset Manager - ZZ Vermogensverwaltung)

"I thoroughly enjoyed the 3-day FX Exotic Options course taught by Dr Uwe Wystup. His deep experience in both the theoretical and practical aspects of his field comes in very handy. As a student, you get to learn some very interesting insights on the subject."

(Commercial Banking - Lloyds TSB)

"Course very interactive and packed with lots of theoretical and practical information. A good refresher or a good introduction to the FX options market."

(Risk Manager - Pictet Asset Management )

FX Exotic Options is a hands-on course covering topics from vanilla FX options, smile construction, to replication of exotic payoffs and implications for pricing and hedging. Uwe Wystup is an absolute authority on FX derivatives and presents the course extremely well. Highly recommended.

(Asset Manager - ZZ Vermogensverwaltung)

I thoroughly enjoyed the 3 day FX exotic options course taught by Dr Uwe Wystup. His deep experience in both the theoretical and practical aspects of his field comes in very handy.

(Commercial Banking - Lloyds TSB)

"Very good course and very useful for what we were trying to achieve. The tutor was very helpful at all times and tried to accomodate all levels of knowledge in the group."

(Pricing Manager - investment management)

"A very helpful course to get a deeper understanding of FX Exotic Options. I like most that it was interactive, not only lecture, but exercises and you could always ask questions in between for a better understanding."

(Senior Market Risk Manager - Global Investment Bank)

"Great diverse course content. Uwe Wystup is a fantastic lecturer with a wealth of knowledge that he is fortunately happy to share."

(Manager - Derivatives Trading - )

"If there is only one course you will do on FX Options: just do this one."

(FX Options Trader - Rabobank International)

"Excellent teaching with both theoretical and practical features."

(FX/Money Market - Nordea Bank)

"Great course [...]. Uwe has lots of experience and explains the complex material very clearly."

(Risk Manager - ING Bank)

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