Table of Contents

 

Part 1. Foundations

 

1. The World of Structured Products

1.1. The Products

            1.1.1. The Birth of Structured Products

            1.1.2. Structured Product Wrappers

            1.1.3. The Structured Note

1.2. The Sell Side

1.3. The Buy Side

            1.3.1. Retail Investors

            1.3.2. Institutional Investors

            1.3.3. Credit Risk

1.4. The Market

            1.4.1. Issuing a Structured Product

            1.4.2. Liquidity and a Two-way Market

1.5. Example of an ELN

 

2. Basic Instruments

2.1. Interest Rates

            2.1.1. LIBOR

            2.1.2. Yield Curves

            2.1.3. Bonds

            2.1.4. Zero Coupon Bonds

2.2. Equities

2.3. Swaps

            2.3.1. Interest Rate Swaps

            2.3.2. Cross-currency Swaps

            2.3.3. Total Return Swaps

            2.3.4. Dividend Swaps

3. Vanilla Options

3.1. Put-Call Parity and Synthetic Options

3.2. Black-Scholes model

            3.2.1. Risk-neutral Pricing

3.3. Pricing European Options

3.4. The Cost of Hedging

3.5. American Options

            3.5.1. American Calls

            3.5.1. American Puts

3.6. Asian Options

3.7. Struturing Process: A way of thinking

 

4. Volatility, Skew and Term Structure

4.1. Volatility

            4.1.1. Realized Volatility

            4.1.2. Implied Volatility

4.2. The  (Implied) Volatility Surface

            4.2.1. The Implied Volatility Skew

            4.2.2. Term Structure of Volatilities

4.3. Volatility Models

4.3.1. Model Choice and Model Risk

            4.3.2. Black- Scholes or Flat Volatility

            4.3.3. Local Volatility

            4.3.4. Stochastic Volatility

 

5. Option Sensitivities : Greeks

5.1. Delta

5.2. Gamma

5.3. Vega

5.4. Theta

5.5. Rho

5.6. Relationships between the greeks

5.7. Volga

5.8. Vanna

5.9. Multi-Asset Sensitivities

            5.9.1. Cross Gamma

            5.9.2. Correlation Delta

5.10. Approximations to BS and Greeks

 

6. Strategies involving Options

6.1. Vertical Spreads

            6.1.1. Bull Spreads

            6.1.2. Bear Spreads

6.2. Other Spreads

            6.2.1. Butterfly Spreads

            6.2.2. Condor Spreads

            6.2.3. Ratio Spreads

            6.2.4. Calendar Spreads

6.3. Option Combinations

            6.3.1. Straddles

            6.3.2. Strangles

6.4. Arbitrage Freedom of the IV Surface

 

7. Correlation

7.1. Multi-Asset Options

7.2. Correlation: Interpretation

7.2.1. Correlation Matrices

            7.2.2. Portfolio Variance

            7.2.3. Implied Correlation

            7.2.4. Correlation Skew

7.3. Basket Options

7.4. Quantity Adjusting Options: “Quantos”

7.4.1. Quanto Payoffs

7.4.2. Quanto Correlation and Quanto Option Pricing

7.4.3. Hedging the Quanto Risk

7.5. Trading Correlation

        7.5.1. Straddles: Index VS Constituents

        7.5.2. Correlation Swaps

 

Part 2. Exotic Derivatives and Structured Products

 

8. Dispersion

8.1. Measures of Dispersion and Interpretations

8.2. Worst-of Options

8.2.1. Worst-of Call

8.2.2. Worst-of Put

8.2.3. Market Trends in Worst-of Options

8.3. Best-of Options

8.2.1. Best-of Call

8.2.2. Best-of Put

8.2.3. Market Trends in Best-of Options

 

9. Dispersion Options

9.1. Rainbow Options

9.1.1. Payoff Mechanism

         9.1.2. Risk Analysis

9.2. Individually Capped Basket Call (ICBC)

9.2.1. Payoff Mechanism

         9.2.2. Risk Analysis

9.3. Outperformance Options

9.3.1. Payoff Mechanism

9.3.2. Risk Analysis

 

10. Barrier Options

10.1. Barrier Option Payoffs

10.1.1. Knock-out Options

10.1.2. Knock-in Options

10.2. Discussion

10.2.1. Parity Relationships

10.2.2. Discrete Barriers

10.3. Hedging Down-and-in Puts

10.3.1. Monitoring the Barrier

10.3.2. Volatility and Down-and-in Puts

10.3.3. Dispersion effects on WO Down-and-in Puts

10.4. Barriers in Structured Products

10.4.1. Multi-asset Shark

10.4.2. Single asset Reverse Convertible

10.4.3. WO Reverse Convertible

 

 

 

11. Digitals

11.1. European Digitals

11.1.1. Digital Payoffs and Pricing

11.1.2. Replicating a European Digital

11.1.3. Hedging a Digital

11.2. American Digitals

11.3. Risk Analysis

11.3.1. Single Asset Digitals

11.3.2. Digital Options with Dispersion

11.3.3. Volatility Models for Digitals

11.4. Structured Products involving European Digitals

11.4.1. Strip of Digitals Note

11.4.2. Growth and Income

11.5. Structured Products involving American Digitals

11.5.1. Wedding Cake

11.5.2. Range Accrual

11.6. Outperformance Digital

11.6.1. Payoff Mechanism

11.6.2 Correlation Skew and Other Risks

 

12. Autocallable Structures

12.1. Single Asset Autocallables

12.1.1. General Features

12.1.2. Interest Rate / Equity Correlation

12.2. Autocallable Participating Note

12.3. Autocallable with Down-and-in Puts

12.3.1. Adding the Put Feature

12.3.2. Twin-Wins

12.4. Multi-Asset Autocallables

12.4.1. Worst-of Autocallables

12.4.2. Snowball Effect and Worst-of put Feature

12.4.3. Outperformance Autocallables

 

Part 3. More on Exotic Structures

 

13. The Cliquet Family

13.1. Forward Starting Options

13.2. Cliquets with local floors and caps

13.2.1. Payoff Mechanism

13.2.2. Forward Skew and Other Risks

13.3. Cliquets with global floors and caps

13.3.1. Vega Convexity

13.3.2 Levels of These Risks

13.4. Reverse Cliquets

 

 

 

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