


The second day of the program starts by looks at options pricing principles. Delegates then get involved in understanding how options can be combined to produce various structures, and how these structures can be used to create effective hedging programs. In the final section, we will explain swaptions, and how flexibility can be added to a standard swap contract by embedding one or more swaptions. 


Options Pricing Principles 



An intuitive insight into option pricing 

Closedform pricing models 

Binomial pricing models 

Monte Carlo pricing models 

Option pricing workshop 

Putcall parity 

American options and earlyexercise 

Volatility – historical, implied experienced 

Volatility and option prices 

Volatility smiles and skews 

Measures of price sensitivity 

Delta – the hedge ratio 

Gamma – the change in delta 

Theta – the decay of time value 

Vega – the sensitivity to volatility 

Greeks workshop 


Building Option Portfolios 



Horizontal, vertical, and diagonal spreads 

Straddles and strangles 

Ratio spreads and backspreads 

Strips of options – caps and floors 

Designing your own structure – a fluent transition between payoff diagrams and component parts 


Option Strategy and Hedging Structures 



Protective puts & calls / caps & floors 

Price enhancement strategies 

Selling options within a hedging program 

Collars, corridors, and participations 

Reducedcost and zerocost structures 

Combining options, futures, and swaps 

Hedging customer energy exposure 


Swaptions 



Swaptions – calls and puts 

Combining swaptions with swaps 

Extendable and cancellable swaps 

Embedding swaptions 

Pricing a cancellable swap 







The final day of the program starts by explaining how options themselves are hedged, and the links between volatility, pricing, risk, and profitability. Delegates then look at practical trading strategies, and the dynamics of the energy options market. Next, we review secondgeneration options, concentrating especially on those which can be used to create practical realworld solutions for clients wishing to hedge their energy exposures more effectively.
The last afternoon is then devoted to an intensive session where delegates, working in teams, are required to identify, measure, and analyse the energy risks of a specific client, assess the client’s needs, design innovative and valueadded solutions to meet those needs, and then make their pitch for the client’s business in competition with other teams. This last session will combine all the important learning points, and provide a link with the practical problems faced by clients. 


Delta Hedging 



How deltahedging works 

Buying high and selling low to achieve deltaneutrality 

The link between delta and gamma 

The cost of being negative gamma 

The benefit of being positive theta 

Gamma and theta as mirrorimages 

The tradeoff between implied volatility and experienced volatility 

How traders price and trade vol 

The link between theta and vega 

Gamma hedging 


Trading Strategies with Options 



Directional vs. Volatility trading 

Choice of option 

Options vs. Cash 

Energy option trading simulation 


SecondGeneration Options 



Introduction to exotic options 

A taxonomy of exotics 

Pathdependent options 

Options with steplike (singular) payouts 

Everyday exotics: barriers and digitals 

Other exotics: compound, average rate and average strike, lookback, chooser, contingent, forwardstart, correlation products 

Exotic option workshop 


Adding Value for Clients – Energy Derivatives Strategies that Work 



Identifying and quantifying energy risk 

Spotting opportunities 

Establishing client objectives – what does the client really want? 

Determining client preferences, pain thresholds, and view 

Tailoring the structure to match the need 

Designing innovative and proactive solutions 

Crossproduct ideas 

Communicating with the client 

Energy risk hedging case 

