This intermediate course concentrates solely on currency options. The course starts off by examining how currency option premiums are quoted. The uses of currency options are examined with specific focus on hedging, asset allocation, and speculation. Hedging strategies are explored in depth and will cover protective puts, put spreads, collars and option writing. Different trading strategies are analyzed, such as spread and volatility trades, and risk reversals. The course participant will use specifically designed software to analyze different options positions. Option pricing and valuation will be covered in depth. Probability is introduced leading into a discussion of the binomial pricing model. Volatility and its importance to option pricing is explained. Historical volatility, implied volatility and volatility curves are explored. Normal distributions, price relatives and lognormal price distributions are examined followed by an in depth look at the Black-Scholes model. Finally, the Greeks are interpreted and what role they have in managing an options book is analyzed. Specially designed software will be used to manage a dynamic delta hedge.

Objectives

By the end of the course, the participant will be able to:

• Describe how currency options are used for hedging, speculating, and asset allocation
• Implement hedging strategies such as protective puts, put spreads, collars and option writing
• Explain different trading strategies, such as spread and volatility trades and risk reversals
• Price and value currency options
• Understand the term "trading with delta"
• Explain the binomial pricing model and how it is used to price options
• Examine historical volatility, implied volatility and volatility curves
• Explain the Black-Scholes pricing model
• Describe normal distributions, price relatives and lognormal price distributions
• Interpret and analyze the option Greeks
• Use computer software to dynamically manage an options position and delta hedge
• Identify Bloomberg functions used by market practitioners

This course is designed for

• Global portfolio managers
• People supporting global portfolio which uses options to hedge currency risk
• Auditors and examiners for global portfolios using options