Training Courses

Derivatives in Fund Management

Category: Derivatives

Course level: Introductory to Intermediate

In house

This one-day course is designed to provide a broad-based review of the main derivative instruments and how investment managers can use them to manage their client portfolios more effectively.

No prior knowledge is assumed and all terms will be fully explained.

Case studies form an integral part of the course, to allow the delegates to consolidate the information and provide the basis for group discussions.

Objectives

By the end of the workshop, delegates will have a better understanding of:

  • different types of derivatives
  • the role of the exchange and clearing house in exchange-traded derivatives
  • cash flow structure (e.g., initial margin, variation margin, maintenance margin and the impact on fund valuations)
  • common derivatives strategies: hedging, asset switching, securitising cash, duration, option strategies
  • the impact of UCITS III on authorised funds
  • valuation approaches with derivatives

Length

1 day

Course Content

Forwards explained

Underlying asset
Settlement and expiry
Spot vs forward prices
Fair value 
Worked example: A simple forward contract
Worked example: Calculating the forward delivery price
 
Exchange-traded contracts

The main derivative markets
    Liffe, Eurex, CBOT, CME, Simex
Opening and closing out positions
Contract specifications
    Expiry, contract value, tick value
Clearing
    Role of the clearing house
    Novation, initial margin, guaranteed settlement
        The role of clearing brokers
Securitising derivatives positions
    Initial margin, cash buffers, using other collateral
    Variation margin
Case study: Margining a futures contract

Index futures

Valuing index futures
How do portfolio managers use index futures?
    Efficient Portfolio Management (EPM)
    Hedging, asset allocation, pre-allocation before the cash is received
Case study: Hedging a portfolio using futures
Case study: Asset allocation using futures
 

Fixed income contracts

Contract specifications
    What is delivered?
    CTD explained
Using fixed income contacts
    Asset switching, changing duration
Case study: Changing the duration of a portfolio using bond futures

Currency contracts

Using currency derivatives
    Currency overlays
    Currency hedging
Case study: Using currency forwards to hedge

Options

Option basics explained
    Buying calls, buying puts
    Writing calls, writing puts
Worked example: Buying call options
Worked example: Buying call options for insurance
Worked example: Writing a covered call for income enhancement
Worked examples: Straddles, strangles, calendar spreads, creating synthetic positions

Swaps

Basic interest rate
Basic currency swap
Using swaps in portfolios
Credit default swaps explained
Equity swaps
Worked example: Using an interest rate swap by a fixed income team

Contracts for Difference (CFDs)

Basic overview
How funds use CFDs; advantages over stock trading or futures
Worked example: A stock CFD

Application of UCITS III in authorised funds

Requirement for global cover
Internal risk-management process
Restrictions on uses of OTC derivatives and counterparty exposure

Accounting for derivatives

Valuing futures and forwards held in portfolios
Associated economic exposure
Cash/stock adjustment
Impact on the balance sheet and P&L
Implications for performance measurement

This course would be suitable for:

  • Client services and call centres
  • Finance and accounting
  • HR and training
  • Investment administration and operations
  • Investment professionals
  • IT and software developers
  • Legal & Compliance
  • Risk management
  • Sales and marketing

This course would be suitable for these exams:

  • CFA - Level 1
  • CFA - Level 2
  • IMC
  • SII Certificate - Derivatives
  • SII Certificate - Financial Derivatives Module
  • SII Certificate - Investment Managment
  • SII Certificate - Securities & Financial Derivatives
  • SII Diploma - Financial Derivatives
  • SII IAQ - Exchange-Traded Derivatives Administration
  • UKSIP - Introduction to Investment
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