Fundamentals of Derivatives

Saturdays
9:00 am to 5:00 pm

As of December 2010, the outstanding OTC derivative contracts reached an unimaginable $601 trillion size.  Over the past few years, the use of derivatives as the preferred method for hedging and risk management has increased.  The importance of the derivatives market was highlighted in the 2008 financial crisis when excessive and improper use led to a global financial meltdown. The critical lesson of the past crisis understands derivative transactions are becoming more important than ever. Acquire holistic understanding of derivatives to become a modern financial practitioner.

This comprehensive introductory course on derivatives will focus on the economics, pricing, risk management, accounting and regulatory environment of derivative transactions.  It also includes intensive application sessions to apply the practical concepts in spreadsheets particularly for pricing & valuation, risk management and hedge effectiveness testing.

A unique feature of this course is its alignment to the derivative course requirements of the Financial Risk Manager (FRM) Level 1 Exam  (30%),  derivatives section of the Chartered Financial Analyst (CFA) Level 1 Exam  (Study Session 15) and CFA Level 2 Exam (Study Session 12).

After the course, you will:

1. Understand the basic mechanics and applications of the basic
    derivative contracts: forwards, swaps and options;
2. Learn basic fundamental concepts in the pricing and valuation
    of financial derivative transactions;
3. Be able to implement pricing and valuation techniques in
    Microsoft Excel;
4. Be introduced to the implications of recent regulations which
    will impact financial derivative practice in the coming years
    ( BSP Circular 594, Basel III, Dodd Frank Act);
5. Be introduced to basic market, credit and operational risk
    management techniques for derivative transactions
    (VaR, Credit Valuation Adjustment-CVA, EVT and
    Stress Testing);
6. Be familiar with basic rules in accounting for derivative
    transactions under PAS No. 39 and be able to implement
    hedge effectiveness testing in Excel; and
7. Understand the developments of hedge accounting rules
    under IFRS 9.

Traders               
Risk Management Officers
Product Control Specialist       
Accounting/Finance Staff
Treasury Personnel           
Auditors (Internal and External)
CFA Level 1 and Level 2 Candidate   
Financial Risk Manager (FRM) Exam Candidate

Day 1:  Building Blocks of Derivative Contracts
Introduction to Derivatives
    a.    What are derivatives?
    b.    The basic building blocks: forwards, swaps and options
    c.    Applications of derivative contracts
    d.    Introductory issues in understanding derivative transactions
    e.    Regulatory environment of derivatives –an introduction
           (BSP Circular 594,  Basel III, Dodd  Frank Act intro)

Forwards:  Mechanics and Valuation
    a.    Basic mechanics of forward contracts
    b.    Applications of forward contracts
    c.    Regulatory requirements of forward contracts
    d.    Introductory valuation concepts for forward contracts
    e.    Application:  Valuation of FX Forward, Gold Forward Contracts

Interest Rate Swaps: Mechanics and Valuation
    a.    Basic mechanics of interest rate swaps
    b.    Applications of interest rate swaps
    c.    The concept of comparative advantage
    d.    Valuation of interest rate swaps
    e.    Application:  Hedging using interest rate swaps

Cross Currency Swaps: Mechanics and Valuation
    a.    Basic mechanics of CCS
    b.    Applications of CCS
    c.    Regulatory requirements of CCS transactions
    d.    Valuation of CCS contracts
    e.    Application:  Transforming Asset Liability Profile Using Cross Currency
           Swap Contracts

Day 2:  Building Blocks of Derivative Contracts
Options: Mechanics and Valuation
    a.   Introduction to option contracts
    b.   Fundamental concepts in option valuation
    c.   Mathematics of Option pricing
    d.   Black-Scholes Model
    e.   Monte Carlo Simulation
    f.    Binomial Option Pricing Model
    g.   Implementing Black Scholes, Monte Carlo and
          Binomial Option Pricing in Excel
    h.   Application:  Valuing Employee Stock Option Contracts
    i.    Option Trading Game

Day 3: Special Topics on Derivatives
Accounting for Derivative Transactions
    a.    IAS 39 on Derivatives
    b.    Hedge Accounting Rules
    c.    Hedge Effectiveness Testing Techniques
    d.    Case Study: Hedge Accounting for Forward, Swaps and Options

Regulatory Developments for Derivative Contracts
    a.    BSP Rules on FX Derivatives
    b.    BSP Circular 594
    c.    Dodd Frank Act
    d.    Basel II and Basel III

Risk Management of Derivative Transactions
    a.    Market Risk (Value-at-Risk for Forwards, Swaps and Options)
    b.    Greeks for Options
    c.    Credit Risk (Credit Valuation Adjustment for Derivative Transactions).
    d.    Operational Risk (Internal Control for Derivative Contracts)

is currently a Vice President of the Structured Solutions Group of a global Dutch Bank.

"The seminar gives a comprehensive view of basic derivatives.  It has given me a good insight on the basic intricacies on how these basic products are priced and valued.  The facilitators are very able and knowledgeable of the topics.  I would recommend this to anyone who wants to gain a foothold on basic derivatives."

IRAIDA BUNNY B. RECTO
Vice President
Debt Capital Markets-Long Term Interest Rate Peso Desk Head
Treasury Group