Simulation – Pricing – Delta Hedging & Greeks Master Package

Simulation, Pricing, Delta Hedging & Greeks Master Package About the courseA great value saving combination for practitioners and students. Includes every file from our package guides on Monte Carlo Simulation, Option Pricing, Delta Hedging, Interest Rate Simulations & IRS Pricing.The master package includes 19 EXCEL templates and 8 handy PDF files.A great deal for customers who wanted to buy the old subscription package that has now been discontinued.Here are the details of the individual packages that have combined within this master package. If you need a component that is not here under the same special pricing, please let us know and we would be happy to creat a custom offer for you.Monte Carlo Simulation with Option pricing1. Derivative PricingThis course focuses on an alternative method of implementing a two-dimensional binomial tree compared to the traditional method of building a binomial tree in excel presented in most option pricing text books.The alternate approach is based on the techniques documented by Professor Mark Broadie at Columbia Business School as part of his coursework in Security Pricing and Computational Finance courses at Columbia University and allows us to extend a simple 3 step tree to a 50 – 100 step option pricing tree in a few minutes. It uses this alternative approach to price European & American calls and put options and Knock out and Knock in (Sudden Death) options.2. Monte Carlo Simulation – Models and ApplicationsThe “Monte Carlo Simulation – Models and Applications” study guide includes topics on how to build Monte Carlo simulators in EXCEL and use these models to price vanilla and exotic options; how to calculate VaR for futures and options; an alternative approach to the original Monte Carlo simulator using historical returns rather than normally distribution returns and the impact of this approach on VaR numbers; fuel hedging risk management case studies; further applications like simulating interest rate term structures and forecasting the monetary policy rate.The Monte Carlo Simulation with Option pricing package guide also includes the following EXCEL files:The supporting excel file for the alternate binomial tree methodology for the products mentioned aboveOption pricing using the Traditional Binomial Tree approachOption pricing using the Black-Scholes option pricing formulaAn example of how the Ladder call option may be priced using Monte Carlo Simulation in EXCEL (standalone Excel file)Derivative Pricing using Monte Carlo Simulation EXCEL file calculates the option prices for a number of vanilla and exotic options including Asian, Barrier, Lookback & Chooser Options.Interest Rate SimulationThe PDF file covers:Components of interest rate modelsFeatures of good modelsCriteria employed when selecting modelsDifferences between various types of term structure modelsEstimation and calibration of parameters for, and construction of, the one-factor equilibrium Cox-Ingersoll-Ross (CIR) modelConstruction and utilization of the one-factor no-arbitrage Black-Derman-Toy (BDT) modelPrincipal Component Analysis (PCA) for the determination of a workable number of components / factors for the Heath, Jarrow, Merton (HJM) modelConstruction of the multi-factor no-arbitrage Heath-Jarrow-Merton (HJM) modelEXCEL files included:Zero Coupon and Forward rate term structures derivation and construction (pre-requisite)Calibration of a CIR Model’s parameters to a historical rates data setConstruction of a BDT modelUtilization of the results of a BDT modelPrincipal Component AnalysisConstruction of a HJM 3-factor modelHedging Higher Order GreekThe course provides a step by step guide on how to build a hedging model that considers hedging the higher order Greeks of the trader’s position. The model is EXCEL based and uses the Solver functionality. The course discusses the setting and purpose of the objective function and constraints. It explains the results in light of various objectives including lower cost, minimization of gamma & vega, etc.Two simplistic illustrations, one based on hedging a single short position, the other based on hedging a portfolio of short positions, walk the reader through the various elements of the model. Tweaks to the base model are discussed to show how results are impacted when constraints and objectives are changed. Constraint redundancy and portfolio allocation limits are also considered.The package consists of a PDF course and supporting EXCEL file containing the model.Constructing Volatility Surfaces in EXCELA volatility surface plots market consistent volatilities across moneyness (strike prices) and maturity (time to expiry). Within the surface market consistent volatilities are referred to as local volatilities. Rather than backing out volatility by applying the Black Scholes model in reverse to at the money options, local volatilities use implied volatilities and a one factor Black Scholes model to drive local volatility values across the surface.Volatility surfaces, like Option Greeks, are among the last topics that get covered in a graduate level course on option pricing. Most schools and professors give it a wide berth in undergraduate and graduate level courses since it is based on an advance practitioner level understanding of the subject. While the topic may get some coverage in a level I course, a level II or level III course is what you need to enroll into to finally build the surface.If you are familiar with Black Scholes equation and pricing models used for pricing European options, calibrating volatility surfaces is one of the tweaks market practitioners use to side step the constant volatility assumption.The volatility surface package includes the following:A 30 page PDF guide that shows how to build a volatility surface step by step in EXCEL using Dupire’s formula.An EXCEL spreadsheet that is used as a simple teaching template by the PDF tutorial above. The Excel sheet shows the implementation of Dupire’s formula as well as the resultant volatility surface. The sheet also shows Taleb’s implementation of implied forward volatility using term structure of volatility concepts.Delta Hedging Greeks – EXCELThis product contains 3 EXCEL files.1. GreeksCalculation of the Black Scholes option price for a European Call and a European Put optionCalculation of Greeks- Delta, Gamma, Vega, Theta & Rho- for a European Call and a European Put optionData table that captures the Black Scholes risk adjusted probabilities and option premium across a series of volatilitiesGraphical representation of Black Scholes risk adjusted probabilities and option premium against volatilitiesData tables that capture the sensitivity of the Greeks against Spot, Strike, Time to maturity, Volatility and the Risk Free Rate respectivelyGraphical representation of the sensitivities of the various Greeks against Spot, Strike, Time to maturity, volatility and risk free rate respectively2. Delta Hedging – Call OptionCalculation of a 12-step Monte Carlo simulation model that generates the underlying stock price seriesCalculation of theoretical option values using the Black Scholes call option price formulaCalculation of call option deltas at each rebalancing intervalCalculation of a replicating portfolio that consists of a long position in Delta times the stock and a short position in the amount borrowed (net of the option premium received at inception) to fund the initial & subsequent incremental purchasesGraphical representation of the theoretical option value and the replicating portfolio value over the life of the optionCalculation of a tracking error for the difference between the value of the replicating portfolio and the theoretical value of the optionGraphical representation of the tracking error across the life of the optionDetermination of the per period interest and principal portions of the amount borrowedDetermination of the Gain (Loss) on sale of portions of the stockSetting up a Cash Accounting P&L that shows cash inflows from option premium received and strike received in the event the option is exercise and cash outflows from interest and principal repayment on the amount borrowedA choice of including of excluding the option premium in determining the amount borrowed at inception. In this case the Principal repaid will equal the gain (loss) if the option is not exercised.100 simulated runs including a graphical depiction of the results showing the Net P&L, Amount borrowed (principal & interest) and Gain/ Losses; and averages across the 100 runs for each of these items3. Delta Hedging – Put OptionCalculation of a 12-step Monte Carlo simulation model that generates the underlying stock price seriesCalculation of theoretical option values using the Black Scholes put option price formulaCalculation of put option deltas at each rebalancing intervalCalculation of a replicating portfolio that consists of a short sale of Delta times the stock and lending of the initial (net of the option premium received at inception) & subsequent incremental short sales proceedsGraphical representation of the theoretical option value and the replicating portfolio value over the life of the optionCalculation of a tracking error for the difference between the value of the replicating portfolio and the theoretical value of the optionGraphical representation of the tracking error across the life of the optionDetermination of the per period interest and principal portions of the amount lentDetermination of the Gain (Loss) on closing of short sale positionsSetting up a Cash Accounting P&L that shows cash inflows from option premium received, interest earned on amount lent and sales proceeds from short sales and cash outflows from strike paid if the option is exercisedA choice of including or excluding the option premium in determining the amount borrowed at inception. In this case the sales proceeds from short sales will equal the gain (loss) if the option is not exercised.100 simulated runs including a graphical depiction of the results showing the Net P&L, Proceeds from Short Sales, Interest Earned and Gain/ Losses; and averages across the 100 runs for each of these itemsPricing Interest Rate Swaps & OptionsTopics covered:Definition of different types of interest ratesOverview of swap contract variationsSummary of the pricing process for interest rate swapsStep-by-step methodology for deriving zero coupon and forward rate term structuresStep-by-step procedures for determining the price of interest rate swaps, Cross currency swaps,Interest rate optionsThe EXCEL files:The calculation of zero coupon and forward rate curves from the par term structureThe calculation of prices of interest rate swaps and cross currency swapsThe calculation of prices of interest rate options