• views: 119
• date: 15 February 2025
• posted by: voska89

What is the mechanism of options in finance, how the theory is coping with market reality, with Excel practice.

What you'll learn

Learn the principle of Option Pricing
Extensive review of the Black Scholes Model and its Greeks
How to manage an option Portfolio
Refresher of usefull Mathematical Conepts: derivatives and Taylor Development
Practical exercises of gamma hedging and pricing
The Volatility Smile
Build an Option Risk Management System in Excel

Requirements

Knowledge of basic Math functions: Exp, Ln

Description

Pricing and risk are deeply intricated and this allows to manage a portfolio of options.This class was originally created for IT developer with no finance knowledge who were going to work in a Bank or a Hedge Fund.It can be also useful for people getting into the banking industry.This class is NOT about how to make easy money without risk by trading options. Remember, in Finance, there is No Free Lunch.The Normal Law will be studied in details, as it is the building block of the Black Scholes model and it is extensively used in Finance.Detailed

Description

of Option. Why do we need an option model, can we see an option with a static hedge: the notion of break-evenAnother 'must know' is the Taylor Development and the mathematical Derivative, a chapter that will allow the student to learn or review these concepts.The Black Scholes model and its Greeks will be analysed in detail, especially its replication theory: you will have an assessment to risk manage a dummy option portfolio until its maturity in Excel, this is a good way to understand how the Gamma/ Theta works. Back in the days when I was a trader, the seasoned option traders used to say "you do not understand Gamma nor Theta until you lose 50K $ on it".So this live Simulation is in my opinion a very good exercise, and it saves 50K $ ;-)The Vega risk management: we will prove that it is nice to be long Out of the Money options, this will be done in Excel. It will lead to the introduction of the Volga.It is well known that Black Scholes is a model where nearly all of its assumptions are wrong, the smile is the answer of the Markets to this issue. We will analyse the two components of the Smile: Volga and Crisis.Light introduction of the SABR model as it is a representative of the Smile models: you will also perform a Calibration of SABR parametersEventually, we will build a Risk Management System in Excel for WTI Futures and Options. All of the previous concepts will be used to create this Excel, it will show all our Option Greeks. The first version will be built with a Flat volatility for each Future. In a second time, SABR smile will be integrated.A small chapter will study the interpolation methodologies, as they must be carefully chosen. The Risk Management is quiet complex, as always in finance, it is the sum of small simple process and measures, but the devil hides in the details and being wrong in the details will cost you a lot of money.Eventually, the Option Trader Job will be presented, with daily tasks, risk measurement and P&L verification.So this class is a complete

Overview

of the option trading process from theory to practice. It has a lot of material based on Excel, and it is downloadable for the students.

Who this course is for

People who want to know how Options really works
IT programmers who want to know wht the option Trader are doing
Freshman starting a job in a Bank or a Hedge Fund
Homepage:

https://www.udemy.com/course/option-pricing-and-risk-management/

   
   
   

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