## Derivatives and Options pricing workshop. Introducing the Bank Treasury function.

Derivatives & Option Pricing MBA Workshop
Welcome to our collection of session transcripts from the course “Understanding Derivatives and Option pricing” taught at the SP Jain campus in Dubai in July 2012. The course faculty was Jawwad Ahmed Farid.

Figure 1 Understanding derivatives and options pricing – primary themes in the training workshop

Derivatives & Options Pricing [...]

## Monte Carlo Simulation – Variance Reduction procedures: Antithetic Variable Technique & Quasi Random sequences

In the past we have looked at Monte Carlo Simulation:
Computational Finance: Building Monte Carlo (MC) Simulators in Excel
And have briefly touched on methods that may be used to improve the results obtained from this tool. These variance reduction procedures decrease the standard error between the simulated result and the true value as well as converge [...]

## Pricing Ladder Options using a Monte Carlo Simulator

Ladder options are options where the strike is reset whenever the price of the underlying asset reaches certain trigger levels or rungs during the tenor of the option. When the next strike or rung of the ladder option is triggered the profit between the old and new rungs/ strike prices are locked in. The rungs [...]

## Forward lessons: Derivative pricing: How to calculate the value of a forward contract in Excel

How to calculate the value of a forward contract in Excel
Value of a long forward contract (continuous)
The value of a long forward contract with no known income and where the risk free rate is compounded on a continuous basis is given by the following equation:

f = S0 – Ke-rT

Where

S0 is the spot price
T is the remaining [...]

## Forward Rate Calculations: Forward Rate Agreements and Forward Foreign Exchange Rates

How to calculate the values of Forward Rate Agreements (FRA)
We are valuing an FRA for someone who is receiving fixed interest rate payments and who is paying floating interest rate payments.
Value of an FRA (zero coupon rate calculated on a discrete basis)

Where, L is the principal amount
RK is the fixed interest rate
RF is the forward interest rate [...]

## Computational Finance: Basics: Calculating forward prices in Excel – Part I

How to calculate the forward price of a security in Excel
Forward Price of a security with no income
Forward Price of a security with no income is given by the formulap S0ert
.
For example if S0 , the spot price, of the asset is 100. The time to delivery in the forward contract is 6 months (or [...]

## Option Pricing – Black Scholes – Probabilities Explained: Understanding N(d1) vs N(d2)

On the other hand N(d1) will always be greater than N(d2) because in linking it with the contingent receipt of stock in the Black Scholes equation, N(d1) must not only account for the probability of exercise as given by N(d2) but must also account for the fact that exercise or rather receipt of stock on exercise is dependent on future value

## Derivatives Posts Index

Derivatives

Monte Carlo Simulation: Convergence and Variance reduction techniques for option pricing models
Forwards and Swaps: Interest Rates Models: Bootstrapping the Zero curve and Implied Forward curve
Options, Forwards, Futures: Pricing Interest Rate Swaps
Options and Futures Training: Basic Options Trading Strategies
Derivatives Training: Options Pricing and Products reference
Options and Derivatives Training: Introduction to Derivatives: Options, Futures, Forwards and Swaps
The [...]

## Options Pricing Training: Interest Rate Options: Pricing Caps and Floors

Interest Rate Options Caps and Floors
Here is the second course on Advance Interest Rate Products. The perquisite for this course is the first course on pricing interest rate swaps.
Interest Rate Swaps (IRS) – Pricing Interest Rate Swaps – The valuation course
The second more advance course builds on the foundation laid in the introductory course and [...]

## Options Pricing Training: Binomial Trees

Binomial Trees
This course focuses on an alternative method of implementing a two-dimensional binomial tree compared to the traditional method of building a binomial tree presented in most option pricing text books. The alternate approach is based on the techniques documented by Professor Mark Broadie at Columbia Business School as part of his coursework in Security [...]