FX Exotic Options
This two-day course provides delegates with a thorough understanding of the pricing, hedging, and risk management of FX exotic options. FX is notable for having a very liquid and transparent market in certain types of exotic path-dependent options, such as barrier options. While vanilla options contracts can be priced directly off a volatility smile, such path dependent securities are sensitive not only to the smile, but also to the underlying smile dynamics. This means that the correct choice of model is paramount.
This course covers the market conventions applicable to FX, with a view towards correct construction of the volatility surface for traded FX options. The course also looks at the models commonly used, such as volga-vanna, local volatility, stochastic volatility and LSV. First generation barrier options will be discussed extensively, including variants such as windowed and forward starting barriers, and the course also looks at second generation exotics and how these introduce pricing complexities. Risk management techniques for the exotics book is discussed, including some practitioner techniques such as barrier bending for barrier risk.
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Available for in-house delivery. Call +44 (0)1483 573150 |
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Duration: Two days (9.00am to 5.00pm) |
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Location: In-house |
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Trainer: Iain Clark |
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Please contact us for a quotation |
Course Outline
Fundamentals of FX Markets
+ Market Structure
+ Quote Styles, Settlement Rules and Market Conventions
Mathematical Basis for FX Option Pricing
+ Black-Scholes Theory from Practitioners' Viewpoint
+ Change of Measure and Practical Relevance
+ Pricing Vanillas and European Digitals
+ Analytic Greeks
Deltas and Market Conventions
+ At-The-Money
+ Butterflies, Strangles and Risk Reversals
Volatility Surface Construction
+ Local Volatility
+ SABR and Other Parameterisations
+ Non-Arbitragable Volatility Surfaces
First Generation Exotics
+ One-Touches and No-Touches
+ Double-No-Touches and Double-Touches
+ Knock-Out, Knock-In, Double-Knock-Out Barriers
+ Partial, Forward, Windowed Barriers
Second Generation Exotics
+ Choosers, Range Accruals, Forward Start Options
+ Lookbacks and Strong Path Dependency
+ Asians - Average Rate and Average Strike Options
Structured Products
+ Structured Exotic Forwards
+ Capital Protected Structures
+ Target Redemption Notes
