Option Hedging Simulation

Applying theory to practice takes its best form in this cutting-edge programme.

Options risk management can be very challenging in real life. This innovative programme uses practical examples and computer based simulations to give you an intuitive perspective on hedging and how to use the “Greeks” to measure the sensitivities of an option value with respect to all market parameters.

During two days, you will simulate the management of a portfolio of options and make hedging decisions just like a derivatives trader. You will test theories, learn from your own mistakes and perfect your decision-making in a risk-free platform. Once the behaviour and interplay of the Greeks are well understood, derivatives will have no more secrets.

The content covered in this programme applies to options traded in equity, currency, commodity and rates markets. Exercises are implemented using Excel VBA, which participants can take away.

All participants will receive a copy of Dr Leoni’s book “Hedging and the Greeks Explained”.

• Traders
• Risk Managers
• Stress Testers
• Investment Managers and Analysts
• Portfolio Managers and Hedge Fund Managers
• Structured Products and Derivatives Desks
• Trading Desks
• Quantitative Researchers
• Middle Office and IT professionals

• Basic knowledge of fixed income, equities and commodities
• Basic knowledge of options
• Basic knowledge of Excel

Hedging Cost

• Forwards
• Put Call Parity
• Binomial Tree model
• Black-Scholes-Merton model

Delta Hedging

• Volatility
• Several angles at delta hedging

Simulation: Delta hedging, P&L distribution and hedging balance

Greeks

• Option Price dynamics
• Greek shapes
• Hedging volatility
• Trading the Black-Scholes assumptions

Simulation: Risk management of options - Short-dated options, Long-dated options and P&L explained

Portfolio Management

• Greek sensitivity of a derivative
• Portfolio Greeks
• Vega matrix
• Portfolio effects

Simulation:  Portfolio hedging - Delta-Vega hedging, Delta-vega-gamma-theta hedging and Portfolio stability of exotics

Volatility Term Structure

• Time-dependent volatility 
• Greeks revisited
• Market term structure and non-arbitrage

Workshop:  Hedging under term structure

Skew and Smile

• Volatility surface
• Market skew and dynamics

Workshop:  Become an option market maker and set your own skew