Commodities, Derivatives and Structured Products

Introduction to Derivatives - Part 2 (2021)


This eCourse consists of three modules. Module 1 describes derivatives markets today, both OTC and exchange-traded – and how the lines between these have become blurred by regulations adopted following the global financial crisis. The module also looks at the many applications of derivatives for the various market players as well as instruments with embedded options, and linear and nonlinear products.

Module 2 outlines the basic structures and terminology associated with options, and looks at the ways in which they are used. The module also describes option variations across asset classes and markets.

Module 3 looks at the key types of swap, namely interest rate swaps, equity index swaps, and credit default swaps. The role of standardization, clearing, netting, and compression in swaps markets is also discussed in detail.


On completion of this course, you will be able to:
- Distinguish between exchange-traded and OTC markets for derivatives
- Identify the key features of derivatives on financial and nonfinancial assets
- List the main motivations for trading derivatives, such as hedging, speculation, arbitrage, investing in intangible instruments, avoiding delivery, asset allocation, and accessing foreign markets
- Identify the main types of instruments with embedded options, such as callable bonds, CoCos, and dual-currency bonds
- Recognise the difference between linear products such as forwards/futures and nonlinear products such as options
- Recognise the connection between optionality and uncertain economic outcomes
- List the key terminology associated with options, such as premium, calls and puts, option holder and writer, strike (exercise) price, expiration date, and underlying assets
- Recall how options are traded and settled
- Identify the key types of volatility in options markets, namely, realised volatility, implied volatility, and projected volatility
- List the key factors affecting the value of an option, including time to expiration, exercise style, implied volatility, and moneyness, and distinguish between an option’s intrinsic value and its time value
- Identify the key characteristics of swap contracts
- List the main types of swap, such as interest rate swaps, equity index swaps, and credit default swaps
- Identify the reasons behind the standardization and clearing of swaps contracts
- Recognise the importance of netting and compression of swap trades for bank regulatory swap requirements


Module 1: Derivatives - Markets
Topic 1: Marketplaces
Topic 2: Financial & Nonfinancial Assets
Topic 3: Derivatives Strategies
Topic 4: Embedded Derivatives
Topic 5: Linear & Nonlinear Products

Module 2: Options - An Introduction
Topic 1: Uncertainty, Choices, Optionality
Topic 2: Option Terminology
Topic 3: Trading & Settlement
Topic 4: Volatility
Topic 5: Option Valuation

Module 3: Swaps - An Introduction
Topic 1: Types of Swap
Topic 2: Notional Principal
Topic 3: Standardization & Clearing
Topic 4: Netting & Compression


Relevant Subject
Type 2 - Dealing in futures contracts
Type 5 - Advising on futures contracts
SFC:2.00, PWMA:2.00
Non-Member: HK$900
All Member: HK$600
Staff of Corporate Member: HK$600