Advanced FX Options & Structured Products

3 days 24-26 Apr 2017, Amsterdam Netherlands 4,485.00 + VAT* Download brochure Add to basket

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"Very detailed, excellent view points from market participants, good technical coverage"
Head of Finance, Capula Investment Management LLP

The agenda of this course will offer delegates a thorough and practical understanding of currency option pricing and risks and will explain how options can be used in directional and non-directional strategies, together with their dynamic hedging implications.

The programme will also focus on analysing, structuring and decomposing hedging, trading and investment strategies utilising both vanilla and exotic options. Delegates will construct and examine a wide variety of directional and non-directional strategies, formulate strategies to meet client exposure management and other objectives, and decompose a range of structured option strategies into their component parts. The impact of changing market conditions on the pricing and performance of these strategies will also be examined.

Particular emphasis is placed on the dynamic interaction between option price determinants, the impact on portfolio risk of higher order risk properties of vanilla and exotic options (e.g. Vanna, Volga) and their pricing and risk management. Particular attention will be placed on higher order volatility risks Vanna and Volga, and their management within portfolios of vanilla and exotic option types.

The programme will then focus on exotic options and a range of the more commonly executed structured FX products as well as their pricing and risk characteristics, in order to understand the motivations and rationale for their usage in a variety of different hedging and trading applications.

Computer Exercises
The training will comprise classroom-based teaching combined with computer based (Excel™ based) simulations and exercises. The course assumes a general understanding of ‘vanilla’ equity derivative instruments and does require basic mathematical fluency.

Attend this intensive 3-day course and gain a comprehensive and detailed analysis of foreign exchange option derivatives. In particular, you will learn:

  • The pricing, risk characteristics, and the dynamic behaviour of FX options in the context of the management of a portfolio of options
  • How to analyse FX vanilla and exotic options
  • To construct pricing an valuation models for currency option
  • The use of FX options in a variety of directional and non-directional strategies
  • Different hedging and trading applications for FX options

The course assumes a general understanding of ‘vanilla’ derivative instruments and, whilst not based upon a detailed theoretical or mathematical approach, does require basic mathematical fluency.

Why not recommend this course to a colleague?

Who should attend

This course has been specifically designed for the benefit of:

  • Traders and dealers
  • Derivatives sales personnel
  • Structurers
  • Risk managers and risk controllers
  • Audit managers
  • Corporate account officers
  • Asset managers
  • Corporate treasury personnel


We work with a series of expert instructors, please select the course location of interest to review the credentials of who will be delivering the programme.

Graham Dudlyke

Graham Dudlyke is a leading consultant and specialist trainer with over three decades of experience within the international financial markets, holding senior positions in a number of leading financial institutions in both London and New York.

His career boasts a wealth of experience within the derivative and capital markets, with senior roles at JP Morgan chase and Mitsubishi UFJ Securities International within derivatives trading, marketing, structuring and risk management. At JP Morgan he managed rate option trading books, and additionally held responsibility for developing the derivatives trading and marketing presence within European markets. At Mitsubishi UFJ he held responsibility for the management of interest rate derivatives trading, and played a major role in building and developing the interest rate derivatives trading business into new products and markets.

In 2011 Graham joined Hilltop Fund Management LLP, London, as a consultant, advising on hedge fund trading and complex investment strategies.

As an independent training consultant for over 10 years, Graham brings his unique practitioner’s perspective and insight to financial markets, providing training and consultancy services to many of the world’s leading financial institutions - banks, institutional investors and asset managers, official institutions and other related financial bodies. The world’s largest asset manager, global ‘bulge bracket’ investment banks, a number of supranational development banks, Fortune 500 companies, as well as central banks across four continents are all represented amongst the institutions that Graham has worked with in the delivery of specialised training and consultancy needs.

Graham is a consultant to Euromoney Institutional Investor plc, international business-to-business publisher, business conference, seminar and training course provider, as a regular and world renowned expert on derivatives and capital markets.

Graham holds an M.B.A. from Imperial College, London and an M.A. from Oxford University.



Amsterdam Hotel

This programme takes place on a non-residential basis at a central Amsterdam hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.



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Do you have five or more people interested in attending this course? Do you want to tailor it to meet your company's exact requirements? If you'd like to do either of these, we can bring this course to your company's office. You could even save up to 50% on the cost of sending delegates to a public course.

To find out more about running this course in-house:

Our Tailored Learning Offering

If you want to run this course at a location convenient to you or if you want a completely customised learning solution, we can help.

We produce learning solutions that are completely unique to your business. We'll guide you through the whole process, from the initial consultancy to evaluating the success of the full learning experience. Our learning specialists ensure you get the maximum return on your training investment.


We can offer any of our public courses delivered at your office or we can devise completely tailored solutions:

Read more about our offering or complete a call back request to speak to a learning specialist.



Day 1

FX Option Valuation – Principles and Option Pricing Models

  • Fundamental properties of currency options
  • Market conventions, terminology, price quotation basis (base Vs. quoted)
  • Adapting the Black-Scholes framework to currency option modeling – Garman-Kohlhagen (1983)
  • Rationalising distortions to the BSM framework
    - Non-continuous hedging
    - Volatility Skew and Kurtosis
  • Problems with fitting the volatility smile dynamically
  • Alternative model implementation methods:
  • Numerical methods: Binomial lattice models
  • Arbitrage-free derivation of a generalised binomial model
  • Modelling spot and forward processes
  • American and other path dependent options
  • Volatility and time parameters in the binomial model; value determinants, price sensitivities
  • Accounting and modeling for stochastic volatility
    - Vanna-Volga approach to constructing volatility surfaces
    - An explanation of sticky strike and sticky delta approaches
    - Quantifying the value of Volga, Vanna risks
  • Local volatility modeling (Dupire et al.)
    - Problems with implementation
    - Hedging (Delta, Vega inaccuracies)
  • Stochastic volatility (SV) modeling
    - Heston, Bates
    - SABR (Hagan et al.)
    - Hedging in a SABR model

Case Study: Building option pricing models; valuation of European, American option styles


  • Understanding volatility; the role of volatility in option pricing; volatility as an ‘asset class’
  • Historic, implied and realised volatility measures
  • Volatility estimation: analysis of data samples; sample sizes; weighting sample data
  • Volatility surfaces
    - Volatility smiles, skews
    - Volatility term structure effects
    - Volatility surfaces for FX options
  • Volatility properties
    - Stochastic volatility
    - Mean reversion
  • Volatility analysis
    - Volatility relative value analysis (Implied Vs. realized)
    - Smiles and Risk Reversals - interpretation and analysis
    - Fitting algorithms to the volatility surface
  • Volatility trading strategies

Option Risks; Hedging and Risk Management of Option Positions

  • First order price risks: Delta, vega, theta, rho, phi
  • Delta hedging and risk analysis
    - Dynamic risk management using delta
    - Delta hedging an option portfolio
    - Limitations and risks inherent in delta hedging
  • PIN risk
  • ‘Sticky strike’ effects
  • Expiration effects
  • Discontinuities; corrections
  • Gamma; 2nd order option price sensitivity
    - Interpreting gamma
    - Gamma characteristics of in-, at- and out-of-the-money options
    - Long and short Gamma – risks and opportunity
    - Impact of Gamma on Delta hedge management
    - Implied Vs. realized volatility exposure
    - Gamma and ‘Shadow’ Gamma
    - Maximising profitability from Gamma management
  • Theta; option price time decay
    - Theta as cost of carry
    - Inter-relationship between Theta, Gamma
  • Vega; implied volatility risk sensitivity
  • Rho; Interest rate sensitivity
  • Understanding and actively managing interrelationships between option price sensitivities
  • Active management of portfolio delta, gamma and vega risks
  • Higher order risks
    - Delta time decay (charm)
    - Gamma sensitivity (speed, colour)
    - Vega (Vanna, Volga)
    - Rega and Sega risks
    - Risk reversals in management of skew (Vanna) risk
    - Butterflies in management of smile (Volga) risk
  • Limitations of option ‘Greeks’
    - Discontinuities in market price behaviour
    - Expiration trading
    - Strategies for managing risk when ‘Greeks’ experience large, discrete changes
    - Stress testing and portfolio scenario analysis; identifying potential future risks

Case Study: Dynamic management of option risks in a single option position/portfolio context; Delta hedging and the analysis of trading p/l over a trading horizon. Exercise will involve managing position Gamma in order to attempt to maximise profitability

Day 2

Basic Option Strategies

  • Simple option strategies and their key characteristics
  • Naked long and short call/puts
  • Risk asymmetry: limited risk versus unlimited risk strategies
  • Option spreads
  • Call spreads and put spreads
  • Tailoring limited risk strategies using option spreads
  • Covered option strategies
  • Covered calls and puts
  • Rationale for using covered calls and puts – monetizing client views and ‘indifference’

Applications of Vanilla FX Options in Currency Risk Exposure Management

  • Risk reduction (hedging) strategies with options
  • Using options in corporate FX risk exposure management
  • Simple hedging strategies
    - Vanilla call/put hedges
    - Tailoring client objectives and constraints using strike variation
    - Costs and benefits of options versus outright forward hedges
  • Structuring tailored hedges with options
    - Zero cost collars/cylinders and range forwards
    - Option spreads and participating forwards
    - Seagulls
    - Extendible flat forwards
  • Tailoring structures to meet client expectations, objectives and constraints:
    - Strike selection
    - ‘Pain thresholds’ – minimum/maximum strike levels
    - Budget constraints: zero cost strategies
    - Impact of market factors (swap points, volatility surfaces) on economics of strategies
    - Incorporating covered option sales into hedging strategies: finding client target or ‘indifference’ levels
  • Rationale for using non-linear (options) vs. linear hedges
    - When is it rational to use options for hedging?
    - Comparative analysis of risk management strategies
    - Advantages/shortcomings of risk management solutions: cost/benefit analysis
    - Tailoring strategies to client risk management policy, constraints and expectations
    - Using options in hedging contingent risks

Non-Directional (Volatility/time decay) Trading Strategies

  • Calendar spreads
    - Rationale
    - Volatility term structure (calendar skew) impact
    - Sensitivities; volatility/time decay exposure
  • Butterfly spreads
    - Structure and rationale
    - Risk characteristics
    - Skew effects
    - Structural variants:
    - Delta neutral
    - Vega neutral butterflies (Vega convexity trading)
    - Condor spread
  • Straddles and strangles
    - Structure and rationale
    - Risk characteristics
    - Volatility trading; dynamic management
    - Skew risk

Case Study: Structuring option strategies (spreads, collars, butterflies); examination of risk characteristics and position risk management through time

Day 3

Exotic Options

  • Exotic option classification
  • Pay-off structure
  • Motivations and applications of exotic options
  • Pricing and valuation issues:
  • Black-Scholes, analytical models; advantages and shortcomings
  • Numerical methods (Binomial, Trinomial lattice models, Monte Carlo simulation)
  • Modelling considerations for exotic option pay-offs
  • Skew effects

Exotic Options - Barrier Options

  • Overview of types (knock-ins and knock-outs; reverse knock-in/out)
    - DOWN and OUT/IN
    - UP and OUT/IN
  • Pricing and valuation of Barrier options
    - Analytic solutions
    - Parity relationships (European = knock-out plus a knock-in)
    - Numerical methods of Barrier option pricing
    - Pricing double barrier options and other variants
    - Impact of varying barrier parameters on performance, cost
  • Hedging Barrier options
    - Risk sensitivities and their characteristics
    - Static replication of barrier option risks
    - Managing Greeks close to barriers; managing sign changes
  • Risks of hedged positions
  • Higher order sensitivities
    - Vanna, Volga sensitivities
    - Skew risk
    - The importance of higher order sensitivities in the management of barrier options
  • Applications of Barrier Options
    - Trading and hedging applications
    - Trading optionality with barrier options – when to use and when not to use barrier options
    - Structured Barrier option strategies:
    - Forward plus/extra
    - Knock-in cylinders
    - KO Forwards
    - KO Collars
    - FX TARNs and Target Redemption Forwards

Case Study: Barrier options workshop; construction of trading strategies

Digital and One Touch Options

  • CASH or NOTHING Calls/Puts
  • ‘One Touch’ digitals and rebates
  • Contingent premium ‘pay later’ options
  • Pricing of digital options
  • Hedging and risk management of digital options
    - Delta hedging; risk management problems
    - Disappearing Greeks
    - Pricing using a volatility surface
    - Gamma, Vega, theta behaviour
    - Replication using spreads, risk reversals

Quanto (Quantity Adjusted) Options

  • Quanto derivatives
  • Pricing quanto derivatives
    – Replication approach
    – Analytical approach
    – Pricing parameters – correlation and volatility inputs
  • Hedging quanto derivatives
    – Correlation risk management
  • Applications of Quanto options
    -- Hedging FX translation exposure
    – Foreign equity/domestic currency options
    – Structured notes with quantoed pay-offs

Average Rate (Asian) Options

  • Mechanics of average rate options
  • Pricing and risk management characteristics
  • Motivations and rationale for the use of Asian options – hedging with Asian options (Practical examples)

Second Generation Exotic Options

  • Exotic Barrier options
    - Digital barriers
    - 2KO and KIKO barriers
    - Parisian barriers
    - Outside barriers
  • Corridors, faders and accumulators
  • Multi-asset options
    - Spreads and baskets
    - Best-of and worst-of options

Structured FX Products

  • Structured FX hedge instruments
    - Barrier structures (forward plus)
    - Knock-in cylinders
    - Knock-out forwards
    - Fader and accumulator forwards
  • Currency linked notes
    - Dual currency deposits
    - Reverse dual currency notes
    - Power Reverse Dual Currency Notes (PRDCs)
  • Range accruals
  • FX hybrids

Case Study: Structuring, pricing and risk management of FX linked structured products

Course Summary and Close

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