Financial Derivatives  Applications Workshop
Duration: 2 days
 Introduction to Applications of Financial Derivatives
 Session 1:
Trading with Futures and Options
 Session 2:
Managing Interest Rate Risk and FX Risk
 Session 3:
Using Derivatives for Synthetic Investments
 Session 4:
Using Derivatives for Financial Engineering
 Session 5:
Trading and Hedging Credit Risk with Credit Derivatives
The objective of this highly practical workshop is to give you handson experience with the
use of financial derivatives for trading and risk management. We assume that you have
already gained a good understanding of the mechanics of financial derivatives, e.g. by
participating in our seminar “Financial Derivatives – Instruments and Mechanics”. The
workshop is divided into a number of sessions with a mix of theory and practice.
We first present, discuss and try out a number of trading strategies with futures
and options. These include ”open position” strategies, ”spread” strategies, ”bull” and ”bear”
strategies, and different volatility strategies with options. We also explain how to use “VIX”
futures and other volatility contracts to trade volatility. These strategies will be illustrated in
depth using reallife data and computer simulations.
Next, we explain how futures and options can be effectively used to hedge interest
rate, FX, equity, commodity and energy risk. We give examples of simple hedges of single positions,
but we shall also look into some complex portfolio hedging and ratio hedging
strategies . We then proceed to working with FRAs, forwards, swaps and interest rate
options. You will learn how to use these instruments to manage interest rate risk, foreign exchange
risk, prepayment risk, contingent cash flow risk and other types of risk.
In the following sessions, we explain, demonstrate and practice how to use derivatives to
create “synthetic cash flows” and how derivatives are used in “financial
engineering” to create structured products. Finally, you will learn how to use credit
default swaps and other types of credit derivatives to hedge against – or take positions in –
credit risk. Applications will include the hedging of singlename credits as well
as more complex hedging strategies such as deltahedging of singletranche CDO’s.
Day One
09.00  09.15 Welcome and Introduction
09.15  12.00 Brief Review of Financial Derivatives
 Instruments, Markets, Mechanics
 Pricing and Risk Assessment
Workshop Session 1: Trading with Futures and Options
 The Trading Process

Bull strategies
 Long future, long call, bull spread, long semifuture,…

Bear strategies
 Short future, long puts, short calls, bearspreads,…

Volatility Strategies
 Straddles, Strangles, Butterflies, “Twin Peaks”
 Trading with Volatility Futures

Spread Strategies
 Intermarket Spreads, Calendar Spreads, “TEDSpreads” etc.
 Practical HandsOn Exercises
12.00  13.00 Lunch
13.00  16.30 Workshop Session 2: Managing Interest Rate and FX Risk
 The Hedging Process

Hedging with Futures and Options
 Hedging Interest Rate Risk with ED Futures and Options
 Hedging Interest Rate Risk with Bond Futures and Options
 Hedging Currency Positions with futures and Options
 Hedging Uncertain and/or Contingent Cash Flows
 Dynamic Hedging

Hedging with FRAs and Swaps
 Hedging Repricing Risk with FRA (Strips)
 Hedging Interest Rate Risk of Bonds with Swaps
 Hedging FX Risk with Swaps

Hedging with Interest Rate Options
 Hedging with IRG’s, Caps, Floors and Collars
 Hedging Call Risk with Swaptions
 Hedging TwoDimensional Interest Rate Risk with Swaptions
 Practical HandsOn Exercises
Day Two
09.00  09.15 Brief recap
09.15  12.00 Workshop Session 3: Using Derivatives for Synthetic Investments
 Synthetic Fixed Rate Investments
 Synthetic Floating Rate Investments
 Synthetic Equity Investments with Index Futures
 Synthetic Corporate Bond Investments
 HandsOn Exercises
Workshop Session 4: Using Derivatives for Financial Engineering

Leveraged Investments
 Reverse Floaters
 Bear Notes
 Superfloaters
 CMS Floaters

Guaranteed Investments
 Principal Protected Equity Investments
 Practical HandsOn Exercises
12.00  13.00 Lunch
13.00  16.00 Workshop Session 5: Trading and Hedging Credit Risk with Credit Derivatives
 Long and short Positions in Credit Risk Using Credit Default Swaps (CDS)
 Hedging StandAlone Credit Risk Using CDS
 Hedging Counterparty Risk with Dynamic Credit Default Swaps
 Arbitrage between Asset Swaps and CDS
 Trading/Hedging Credit Spread Risk using Total Return Swaps and Credit Options
 Locking in Spreads on Planned Debt Issues
 Correlation Trades with Basket Default Swaps and Synthetic CDO Tranches
 Negative Basis Trades between ABS and CDS
 Practical HandsOn Exercises
Evaluation and Termination of the Seminar
