NUS RMI Workshop on Derivatives and Risk Management – Bridging Theory and Practice

Program Overview: What you can expect to learn?

This 2-day risk-management program is designed to bridge the gap between theory (what is found in most textbooks and learnt in universities) and what is actually done in practice. At the end of the course, attendees can expect to

• put together their spreadsheets to value any type of option with deterministic volatility and interest rate term structure in the four major asset classes using a variety of numerical methods,
• have a good overview of the some of the more common stochastic interest rate and volatility models used in the market place,
• have an exposure to volatility surfaces calibration,
• better understand how to use scenario generators to quantify risks, and,
• learn how these quantitative tools are used to solve real world risk-management problems.

Who should attend?

• Asset-liability managers and risk managers
• Mid-office and back-office professionals
• Investment, risk-management and corporate finance professionals
• Actuaries
• Students looking to pursue a career in investment banking and risk-management
• Fresh graduates of finance programs
• Experienced professionals looking to brush up on their quantitative skills

Tentative Agenda

Day 1:

• Overview of Financial Markets
• Convergence of Financial Market Risks With Non-financial market risks (consumer behavior, mortality, weather etc.)
• Applications of forwards/futures/swaps/options in currency, equity, commodity and interest rate markets
• Overview of analytical option pricing models used to price currency, equity, interest rate and commodity European-style path/non-path-dependent options (e.g. Black-Scholes model, Black model, and other variants) in the presence of deterministic term structure of rates/volatility)
• Overview of numerical methods (e.g. simulations, finite difference, binomial etc.) used to value early exercise options, path/non-path-dependent options with no analytical formula
• Overview of stochastic term structure of interest rates/volatility models (e.g. HW 1 and 2 factor, Libor Market Model, Heston etc.)
• Volatility smiles/surfaces/calibration and option pricing in practice

Day 2:

• Exposure, risks and what-if-scenario analysis
• Linkage between option pricing models and scenario generators
• Tentative Case Studies Include:
  • Case Study 1: Pricing options embedded in an executive compensation contract
  • Case Study 2: Pricing and hedging a variable annuity contract with a living benefit rider
  • Case Study 3: Quantifying and hedging interest rate, commodity price and currency exposure

Speakers

Dr. Kannoo Ravindran (Ravi)