An Introduction to Derivatives

Derivatives now play a significant role in the investment portfolio, whether they are used as a key risk management tool or provide liquid alternatives to gain market exposures. Understanding how derivatives work, what markets they are relevant to and possessing a comprehension of the concepts behind derivatives is of fundamental importance in the new age of the investment industry. Too many within the industry consider derivatives as complicated, if only because they view the jargon as alien. This half-day course aims to demystify the terminology used in the marketplace and promote an awareness of the concepts behind derivatives. It also provides an understanding of the different types of instruments and how investment managers use them to assist in achieving the risk and return objectives for client portfolios.

Key Learning Objectives

• Provide a clear understanding of the terminology and the concepts behind derivatives
• Cover the fundamental knowledge you need to know about derivatives
• Understand why derivatives are used as well as or in place of cash assets
• Be aware of how derivatives are used by investment managers and illustrate simple portfolio examples of how they are used in the portfolio
• Recognise the difference between Exchange Trade and Over-The-Counter (OTC) products
• Offer an insight into the different derivative instruments used such as futures, swaps and options and the potential risks involved

09:30     Derivatives Market Overview

• Definition of a derivative and the underlying markets
• Differentiating derivatives from traditional cash market products
• Derivative execution – how they are traded: exchange traded vs. OTC
• Types of derivatives – forwards and futures, swaps and options
• Size of the derivatives markets and the market participants

09:45     Derivative products – Forwards, Futures and Swaps

• Futures and forward contracts – exchange traded vs. Over-The-Counter (OTC)
  • Review of the contract definitions and mechanics
  • The concept of margin
  • Role of the clearing house
  • Portfolio applications – hedging using equity index futures and currency forwards to mitigate market risks
• Swap contracts
  • What are they? – why use swaps and how they differ from exchange traded futures
  • Cash flows and mechanics
  • Portfolio applications – equity swaps, interest rate swaps (IRS), currency swaps and credit default swaps (CDS)

10:45     Coffee Break

11:00     Case Study – using forward, futures and swaps in a portfolio

11:15     Derivative Products – Options

• Options fundamentals and terminology – calls vs. puts and intrinsic value vs. time value
• Different option styles – American vs. European options
• Option pay off diagrams
• Why use options over futures and forwards?

12:00     Coffee Break

12:15     Case Study – using options in a portfolio

12:30     Derivatives in the portfolio Summary

• Overview of how derivatives are used by investment managers
• Advantage and disadvantages summarised
• A brief look at: asset allocation, index-linked funds and absolute return strategies

13:00     Q&A and Course Conclusion

This is a half-day course for those who are new to derivatives or need to build their understanding of the main derivative contracts to improve their effectiveness. This might include managers, supervisors, technical and operations staff from the following activities:

• Client services and sales and marketing
• Finance and accounting
• HR and training
• Investment professionals, investment administration and operations
• IT and software developers
• Risk management, legal, audit and compliance
• New entrants

Russell Hammerson

Russell Hammerson is an experienced banker working with structured products and exotic options over 15 years.

Russell started his career in the fixed income trading division at Chase Manhattan in 1986. After having graduated from the Chase nine-month advanced financial risk analysis programme, he was seconded to the Chase insurance banking division for a year. Taking his insurance expertise with him, he later moved to Citibank to work in the financial engineering division, structuring fixed income and equity products for institutional investors.

From Citibank, Russell moved to Bear Stearns to help set up the newly established equity derivatives group as associate director responsible for marketing and structuring of European products prior to becoming head of structured products at Commerzbank.

Before moving into the technical training arena, Russell ran the structured product group at Banque Nationale de Paris followed by Bankgesellschaft Berlin, London, in a similar role as head of engineered products and international new issues and director of the London Management Committee.

Russell has been training all areas of capital markets since 2001. At BG Consulting (now trading as ZISHI Cornerstone), he specialises in structured products, equity and credit derivatives and exotic options.

IA Member £395.00 +VAT
Non-Member £545.00 +VAT

Pay using a credit card online, or if you wish to be invoiced please email your full details to: Training@theia.org

PLEASE NOTE: Full payment for the course must be made prior to the course commencement date.

• Any cancellation must be made in writing.
• For all cancellation received 15-30 days prior to the course start date, 50% of the course fee is still payable.
• No refund is given for a cancellation made 14 days or less prior to the commencement of a course.
• Transferring from one course to another is treated as a cancellation.
• You can substitute one delegate for another at no additional cost. In this instance, please give two business days’ notice.

Hybrid Training Courses:

Hybrid deliveries of our training allows participants on our courses the option to attend in-person here from our offices at Camomile Court, or you can attend virtually via MS Teams.

Please be advised a training course could change from hybrid delivery to solely virtual delivery. In such an event, we will inform delegates at least one week prior to the course delivery date.

There are a limited number of in-person spaces available on this course and this will be allocated on a first come first served basis.