Understanding Physical Optionality
Aimed at trading practitioners or those in a risk management role on a trading book or in a VaR team, this course will de-mystify the term 'physical optionality' and present a clear guide to how to identify, assess and model various physical scenarios where such choices exist. It will include some option theory in order to understand the underlying concepts but will focus on practical modelling and application using market simulations.
This online "live" course is split into four 2-hour sessions. These sessions can be booked around your convenience and need not be performed on consecutive days.
Session 1 - Financial Option Theory and "The Greeks"
- What is an exchange traded option contract? Puts and Calls
- Option contract variables
- Understanding typical option strategies
- Understanding and interpreting "the greeks"
Session 2 - Understanding Physical Optionality and Evaluation
- Recognising a synthetic option within a physical contract
- Assess real market examples
- Being able to evaluate the option and structure ways to realise value
- Concept of delta hedging and suitability of hedging instrument
Session 3 - Black Scholes and Monte Carlo Simulations
- Understanding the theory
- Converting the physical into a synthetic option
- Building a model - things to consider. Theory v practical?
- Running practical examples
Session 4 - Practical Examples and Scenario Modelling and Evaluation
- Month 1 versus month 2 cargo pricing option - assessing and building the model
- Run the model (month 1 versus month 2) throughout the month and assess each trades effect on exposure and p&l
- East / West product option - assessing and building the model
- Run the model (East / West) throughout the month and assess each trades effect on exposure and p&l