MODELING AND ANALYSING

DERIVATIVES USING EXCEL

2 DAY WORKSHOP

MODELING AND ANALYSING DERIVATIVES USING EXCEL 6th & 7th October, 2010 : Mumbai

8th & 9th December, 2010 : Delhi, Ahmedabad

15th & 16th December, 2010 : Bangalore, Mumbai

Program Fee: INR 13,000 /- + 10.3% ST

PROGRAM OBJECTIVE

A common misconception is that understanding derivatives requires knowing a lot of advanced math

which is the privilege of only the geeks. That said, sometimes you probably wonder how do these large bunch of

I-Bankers manage to provide derivative solutions to their clients because they don’t seem to have been rocket

scientists in their previous avatar. There would have also been questions like how do you actually engineer

those financial products? May be, you read something called Black Scholes, Ito’s Lemma, and so on but they

didn’t quite answer those questions convincingly, much less, make sense in the context of the real world of

finance.

In the last two decades, derivatives have become all-pervading in financial markets with outstanding

notionals in excess of US$ 600 trillion. If your profession has anything to do with finance, then there is a pretty

high chance that you will have something to do with derivatives at some point or the other. This course tries to

demystify and simplify derivatives using a tool like Excel. For a practioner, it may be difficult to relate the Black-

Scholes equation but it would probably start to make sense once you start thinking like an accountant about all

these greeks and put the differential equations in excel. In the workshop, we will start to think of each of these

greeks in terms of money, which is what traders do. The program covers a comprehensive list of topics that

derivative practioners need to understand for their day-to-day work.

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Understand financial engineering specifically, how

derivative structures are engineered

Pricing and risk management of Equity, FX, Interest

Rate and Credit Derivatives

Demystify and simplify the quantitative techniques in

analysing derivatives using Excel

Be aware of derivatives as risk management tools

Learn how to manage a derivative portfolio

Appreciate how derivatives are structured to suit

client requirements

Learn simulation techniques for pricing derivatives

Learn how to solve any stochastic partial deferential

equation (including Black Scholes equation) using

spreadsheets

Understand Greeks (Delta, Gamma, Vega & Theta)

and the monetary implications of each of them

MODELING AND ANALYSING DERIVATIVES USING EXCEL

PROGRAM FACULTY

Our faculty is an experienced Investment Banker and a guest faculty in finance in IIMs, who specializes in Fixed

Income, Foreign Exchange and Credit Derivative products. He has conducted training programs for banks and

corporates in India, Singapore, Hong Kong, Middle East, and South Africa on topics such as Credit Derivatives,

Fx Derivatives, FI Derivatives, ALM, M&A, Financial Modeling for LBOs, Debt Capital Markets, Basel II and Risk

Management.

WHO SHOULD ATTENTD

Capital Market Professionals

Quantitative analysts

Investment Bankers

Risk professionals

Treasury managers

Controllers

Economists

KEY BENEFITS

MODELING AND ANALYSING DERIVATIVES USING EXCEL

DAY ONE

Geometric Brownian Motion

Financial variables with deterministic Jump and

stochastic jumps

Taylor series

Our first differential equation

Binomial Model

Binomial model for an asset price random walk

delta hedging

no arbitrage

the basics of the binomial method for valuing options

risk neutrality

Pricing exercises using Binomial model

Simulating and Manipulating Stochastic Differential

Equations

Using Ito’s lemma to manipulate stochastic

differential equations

Continuous-time stochastic differential equations as

discrete time processes

Simple ways of generating random numbers in Excel

Correlated random walks

Monte Carlo Simulation and Related Methods

the relationship between option values and

expectations

how to do Monte Carlo simulations to calculate

derivative prices

simulations in many dimensions using Cholesky

factorization

The Black–Scholes Model

the foundations of derivatives theory: delta hedging

and no arbitrage

multiple ways of deriving the Black–Scholes partial

differential equation

the assumptions that go into the Black–Scholes

equation

how to modify the equation for commodity and

currency options

Replication of price of a derivative product in general

is the cost of risk managing it

Excel Exercise using a Partial Differential Equation

Discrete Hedging

the effect of hedging at discrete times

hedging error

the real distribution of profit and loss

Pricing exercises

Equity Derivative Products

Vanilla Options

Call/Put Options

Contract specifications of Call/Put Options

Exercise: Pricing with Black Scholes Model and

Monte Carlo Simulation in Excel

Basic strategies containing vanilla options

Call and put spread

Risk reversal

Risk reversal flip

Straddle

Strangle

Butterfly

Seagull

MODELING AND ANALYSING DERIVATIVES USING EXCEL

DAY TWO

Fx Derivatives and Interest Rate Derivatives

Fx Forwards, Fx Swaps

When to use an FX forward, Fx Swap

Pricing & Hedging Examples

Fx Structuring Exercise in Excel: Corporate Client

Fx Structuring Exercise: Cross border acquisition

Interest Rate Swaps

LIBOR Swaps

MIBOR Swaps

OIS Swaps

Basis Swaps

Cross Currency Swaps

Standard CCS with principal exchange

PO Swaps

CO Swaps

Interest Rate Options

Receiver and Payer Swaptions

Caps and Floors

Callable & Puttable Bonds

CO Swaps

Interest Rate Options

Receiver and Payer Swaptions

Caps and Floors

Callable & Puttable Bonds

Credit Derivatives

Credit Default Swap Pricing

Pricing First-to-default Basket

Copula Models for pricing credit derivatives: Gaussian

Copula

Pricing CDO

Risk management of Derivatives

Value at Risk

VAR as Downside Risk

VAR Parameters: Confidence Level, Horizon,

Application: The Basel Rules

VAR Methods

Counterparty Credit Risk for Derivative Transactions

Counterparty-level exposure

Credit Value Adjustment (CVA)

CVA as the price of counterparty credit risk

Expected Exposure - Conditional on Default

Peak Exposure - Conditional on Default

Wrong/Right-Way Risk

+ 91 80 42023051

Mumbai Bangalore

Ahmedabad Delhi

15th & 16th December, 2010

8th & 9th December, 2010 Modeling and Analysing Derivatives

6th & 7th October, 2010 - Mumbai

Using Excel

#501, Block :10,

Rs 13,000/

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