This 2-day education will introduce the participants to the essentials of derivatives markets and the applications of derivative instruments in hedging and speculation.
A derivative is a financial instrument whose value depends on, or is derived from, the values of other, more basic underlying variables. Usually, the variables underlying derivatives are the prices of traded assets. In the last 40 years, derivatives have become increasingly important. Futures and options are actively traded on many exchanges throughout the world. Financial institutions, fund managers and corporate treasurers enter many different types of forward contracts, options, swaps and other derivatives. Derivatives are added to bond issues, used in executive compensation plans, employed to transfer risk from the original lenders to investors. There are many people who also criticize the widespread usage of derivatives, but in today’s financial worlds, nobody can ignore their existence.
This certificate program will focus on the three main types of derivative instruments, namely options, forwards/futures and swaps. After a brief introduction, we will discuss the mechanics of option markets and various pricing relations that should hold for call and put options. We will also learn about the pricing of options through binomial trees and the Black-Scholes-Merton model. Next, we will move onto forwards and futures with a focus on the calculation of forward/futures prices and the valuation of these contracts. We will also talk about how interest rate and currency swaps are structured and valued.
The second part of the certificate program will commence by focusing on various trading strategies that can be attained by combining various options. The sensitivity of option prices to various variables and hedging practices of option positions will be discussed through the Greek letters. We will also talk about why volatility smiles are encountered in the option markets. Next, we will move on to how futures contracts can be used for hedging purposes with a special emphasis on interest rate hedging. Finally, we will also review the organization of derivatives markets in Turkey.