OPTIONS
SUMMARY
This module enables participants to identify the structure of option contracts and to use options to create upper and lower bounds when managing interest and foreign currency exposures. The potential gains and losses will be mapped.
OBJECTIVES
Upon completion of this module, participants will be able to:
1. Describe an options contract.
2. List the underlying instruments and how settlement of options contracts occurs.
3. Distinguish between and American and a European option.
4. Map the potential gains and losses in option contracts.
5. Identify the sources of price quoting conventions for options on the various exchanges.
6. List the uses of options as hedges.
7. Calculate the intrinsic and time values of an option.
8. List the components of the Black–Scholes model of option pricing.
9. Discuss the role of volatility in option premiums.
10 . Discuss the impact of dynamic hedging models and implied volatility on option strategies.
11. Construct a hedge (synthetic cap, floor, collar) using interest rate and foreign currency options.
12. Link options to hybrids and synthetics.
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