DOCSLIB.ORG

Copyrighted Material

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Copyrighted Material Index A historical performance, 35–36 B absolute priority rule, 101–102 interpretation issues, 36 backfill bias, of hedge funds, 69 absolute-return vehicles, 63 investment characteristics, 37–40 back office, 200 accounting risk, 209–210 market for, 28–35 backtesting, 229 accreting swaps, 143–145 in portfolios, 40–41 back-to-back transactions, 131 active managers, selecting, 10–11 real estate, 13–26 backwardation, 48–49, 161, 170 active risk, 212 benchmarks, 15–17 Bankers Trust, 144–145 actual extreme events, scenario analysis due diligence, 26 Bank for International Settlements, 449n.4 with, 232 historical performance, 17–18 Bank Herstatt, 207 age effects, hedge fund, 75 interpretation issues, 18 bankruptcy process, 100–103 Aktiengesellschaft (AG), 33 market for, 13–15 absolute priority rule, 101–102 alpha, 13, 63, 288 in portfolios, 20–26 Chapter 7 and Chapter 11, 102 alpha core, 13 solutions to problems, 119–127 netting in, 247 alpha strategies, 288 traditional vs., 7–13 prepackaged filings, 102 alternative investments, 6–127 Alternative Investments Management in United States vs. other countries, commodities, 43–55 Association, 76–77 100–101 benchmarks, 45–46 Altman-NYU Salomon Center Bankruptcy Reform Act (1978), 100 historical performance, 46–49 Defaulted Public Bond and Bank Basel Committee on Banking interpretation issues, 49 Loan Index, 95 Supervision, 240–241 investment characteristics, 50–53 American options, 238, 366 Basel I (Capital Accord of 1988), market for, 44–45 American Stock Exchange (AMEX) 240–241 in portfolios, 53–55 and NAREIT Index, 17 Basel II (New Basel Capital Accord), common features, 7 NASDAQ 100 Trust Shares, 367n.3 240–241 defined, 7 American style swaptions, 479, 484, basis distressed securities, 93–103 485 defined, 274–275 bankruptcy process, 100–103 AMEX. see American Stock and expected hedged return, 279 benchmarks, 95 Exchange and futures exchange rates, 277–279 example, 102–103 amortizing swaps, 143–145 and hedged return, 272 historical performance, 95–96 analytical method, 215–220 basis point value (BPV), 314 interpretation issues, 96 angel investors, 30 basis risk investment characteristics, 97 Apple Computers, 37 in currency risk management, 277–279 market for, 94 arbitrage and hedging with commodity forwards in portfolios, 97–100 defined, 308 and futures, 185–186 evaluation of, 10–11 distressed debt, 98 BB Holdings, 324–325 hedge funds, 56–84 forwards pricing by, 163–167 bear spreads, 386–389 benchmarks, 61–63 apparent arbitrage and resolution, behavioral considerations, of risk due diligence, 75–78 164–165 management, 252 fund effects, 74–75 with positive lease rate, 165–167 Belgium, 14 historical performance, 63–66 asset allocation beliefs, about currencies, 291 interpretation issues, 66–70 adjusting, 335–341 benchmarks investment characteristics, 71 and equity market risk, 473–476 for commodities, 45–46 market for, 56–60 and futures, 335–344 for distressed securities, 95 performance evaluations, 78–84COPYRIGHTEDadjusting asset allocation, MATERIAL 335–341 for hedge funds, 61–63 in portfolios, 71–74 pre-investing in asset classes, alpha determination and absolute- investors’ goals for, 6 342–344 return investing, 63 low-return environments, 8–9 strategic, 92–93 comparison of manager-based hedge managed futures, 84–93 asset class(es) fund indices, 62–63 benchmarks, 86 and asset/currency returns, 291 for managed futures, 86 historical performance, 86–88 currency as, 294 for private equity, 35 interpretation issues, 88 pre-investing in, 342–344 for real estate, 15–17 investment characteristics, 88–89 asset swaps, 136 beta market for, 85–86 asset under management (AUM) changing, 334–335 performance persistence, 91 fees, 59 defined, 212 in portfolios, 89–91 Australia measuring and managing, 322–323 strategic asset allocation, 92–93 benchmark hedge ratio for investors, biases practice problems, 106–118 293 backfill, 69 private equity, 26–43 currency risk management, 270, 286, for hedge funds, 66–69 about, 26–28 288 in index creation, 66–68 benchmarks, 35 real estate market, 16, 20, 24 stale price, 69 due diligence, 41–43 REITs, 14 survivorship, 68–69 I-1 index.indd 1 03/05/12 3:19 PM I-2 Index bid–ask spread, credit risk and, 204 Cambridge Associates, 35 CISDM Trend-following strategy, 87, 88 binomial model Canada Citigroup, 133 and box spreads, 400, 401 bankruptcy, 100 claw-back provision, 34 volatility in, 433 currency risk management, 292 closed-end funds, 14 Black–Scholes–Merton pricing option pension funds, 9 closeout netting, 247 and box spreads, 400, 401 public sector pension plans, 40 CLS. see continuously linked formula for, 394–395, 425–426 real estate benchmarks, 16 settlements and model risk, 206 REITs, 14, 24 CME. see Chicago Mercantile Exchange prices from, 367n.4, 381 caps, floating-rate loan, 413–417 CMT rate. see constant maturity volatility in, 212–213, 433 Capellas, Michael D., 99 treasury rate bonds Capital Accord of 1988 (Basel I), collars adjusting allocation between, 337–339 240–241 defined, 383 cheapest to deliver, 315 capital adequacy ratio, 241n.49 in equity portfolios, 394–398 dual currency, 466–469 capital allocation, risk management in, with floating-rate loans, 420–423 bond futures, risk of, 315–317 250–252 collateral, managing credit risk with, bond portfolios, risk of, 313–315 caplets, 413–415 246–247 bond portfolio risk, 313–321 caplet payoff, 416, 422 collateral return, 48 balancing types of risks, 315–317 carried interest, 33 commingled real estate funds (CREFs), of government bond portfolios, carry, 170 14–15 317–320 carry markets, 170–173 commitment, for private equity risk of bond futures, 315 convenience yield, 171–173 investments, 33, 37, 41, 42 risk of bond portfolio, 313–315 storage costs, 170–171 commitment period, 41 variations and problems, 320–321 cash Committee of Sponsoring Organizations bond price, yield and, 313–314 equitizing cash, 330–331 of the Treadway Commission, 200n.3 borrowing from equity, 331–335 commodities, 43–55 calls with, 403–408 invested in private equity, 42 benchmarks, 45–46 swaptions in anticipation of, 479–483 synthetic index funds, 327–330 defined, 7, 43 box spreads, 400–403 cash-and-carry arbitrage historical performance, 46–49 BPV. see basis point value cash flow, 169 commodity index return breakeven point described, 166–167 components, 48–49 bear spread, 388 and forward price, 172 recent performance, 47 box spread, 402 cash flow(s) interpretation issues, 49 bull spread, 385 cash-and-carry arbitrage, 169 investment characteristics, 50–53 butterfly spread, 392 from VC and buy-out funds, 38 commodities as inflation hedges, call options, 370, 376 cash flow at risk (CFAR), 229 52–53 collars, 395–396 cash receipts, foreign, 346, 464–466 risk characteristics, 50–52 covered calls, 377 CBOT. see Chicago Board of Trade market for, 44–45 protected puts, 381 CCAA. see Companies’ Creditors size of market, 44–45 put options, 373, 374, 376 Arrangement Act types of commodity investments, 44 straddles, 399 Center for International Securities and in portfolios, 53–55 Brightman, Christopher J., 10 Derivatives Markets (CISDM), 22, types of, 44 Brin, Sergey, 31 60–62, 95 commodity forwards and futures, budgeting, risk, 243–245 CFAR. see cash flow at risk 159–192 bull spreads, 383–386 Chapter 7 bankruptcy, 93, 100, 102 about, 159–161 business risk, 202n.5 Chapter 11 bankruptcy, 93, 100–102 carry markets, 170–173 butterfly spreads, 389–394 cheapest to deliver bond, 315 convenience yield, 171–173 buyout funds, VC funds vs., 38 Chicago Board of Trade (CBOT) storage costs, 170–171 corn futures, 177, 179 and commodity lease rate, 167–170 C futures pricing, 160 forward prices, 168–170 callable debt, removing calls from, municipal bond futures, 320n.16 lease market for commodities, 487–489 U.S. Treasury bond futures, 315 167–168 call features Chicago Mercantile Exchange (CME), commodity spreads, 184 adding calls to noncallable debt, 286n.6 corn forward market, 176–179 489–492 hedging the principal, 270 electricity, 162–163 removing calls from callable debt, SPAN system, 231 equilibrium pricing of forwards, 487–489 weather derivatives, 187 161–162 call options (calls) China, 14 forwards pricing by arbitrage, 163–167 adding, to noncallable debt, 489–492 CISDM. see Center for International apparent arbitrage and resolution, with borrowing, 403–408 Securities and Derivatives Markets 164–165 in equity portfolios CISDM CTA trading strategy with positive lease rate, 165–167 combinations of puts and, 394–403 benchmarks, 86–88 gold futures, 173–176 covered, 376–380 CISDM Currency strategy, 87, 88 evaluation of gold production, long/short positions for, 369–372 CISDM Discretionary strategy, 87, 88 175–176 managing currency exposure with, 286 CISDM Diversified strategy, 87, 88 gold investments, 174–175 premiums, 219 CISDM dollar-weighted CTA index hedging strategies, 185–188 removing, from callable debt, 487–489 (CTA$), 86–88, 90 basis risk, 185–186 call payoffs, 403, 404, 406–407 CISDM equal-weighted CTA index for jet fuel with crude oil, 186–187 Calmar ratio, 82n.120 (CTAEQ), 86, 87 for weather derivatives, 187–188 CalPERS, 290 CISDM Financial strategy, 87, 88 natural gas, 179–182 index.indd 2 03/05/12 3:19 PM Index I-3 nonstorability of, 162–163 covariance management of currency risk profile oil, 182–184 of asset returns and local currency with, 293 practice problems, 189 value, 273 technical approach, 293–294 seasonality of, 176–179 and risk of equities, 322 currency overlay manager, 292 solutions to problems, 190–192 covered calls currency risk,
Load more

Recommended publications
  • Up to EUR 3,500,000.00 7% Fixed Rate Bonds Due 6 April 2026 ISIN
    Up to EUR 3,500,000.00 7% Fixed Rate Bonds due 6 April 2026 ISIN IT0005440976 Terms and Conditions Executed by EPizza S.p.A. 4126-6190-7500.7 This Terms and Conditions are dated 6 April 2021. EPizza S.p.A., a company limited by shares incorporated in Italy as a società per azioni, whose registered office is at Piazza Castello n. 19, 20123 Milan, Italy, enrolled with the companies’ register of Milan-Monza-Brianza- Lodi under No. and fiscal code No. 08950850969, VAT No. 08950850969 (the “Issuer”). *** The issue of up to EUR 3,500,000.00 (three million and five hundred thousand /00) 7% (seven per cent.) fixed rate bonds due 6 April 2026 (the “Bonds”) was authorised by the Board of Directors of the Issuer, by exercising the powers conferred to it by the Articles (as defined below), through a resolution passed on 26 March 2021. The Bonds shall be issued and held subject to and with the benefit of the provisions of this Terms and Conditions. All such provisions shall be binding on the Issuer, the Bondholders (and their successors in title) and all Persons claiming through or under them and shall endure for the benefit of the Bondholders (and their successors in title). The Bondholders (and their successors in title) are deemed to have notice of all the provisions of this Terms and Conditions and the Articles. Copies of each of the Articles and this Terms and Conditions are available for inspection during normal business hours at the registered office for the time being of the Issuer being, as at the date of this Terms and Conditions, at Piazza Castello n.
    [Show full text]
  • (NSE), India, Using Box Spread Arbitrage Strategy
    Gadjah Mada International Journal of Business - September-December, Vol. 15, No. 3, 2013 Gadjah Mada International Journal of Business Vol. 15, No. 3 (September - December 2013): 269 - 285 Efficiency of S&P CNX Nifty Index Option of the National Stock Exchange (NSE), India, using Box Spread Arbitrage Strategy G. P. Girish,a and Nikhil Rastogib a IBS Hyderabad, ICFAI Foundation For Higher Education (IFHE) University, Andhra Pradesh, India b Institute of Management Technology (IMT) Hyderabad, India Abstract: Box spread is a trading strategy in which one simultaneously buys and sells options having the same underlying asset and time to expiration, but different exercise prices. This study examined the effi- ciency of European style S&P CNX Nifty Index options of National Stock Exchange, (NSE) India by making use of high-frequency data on put and call options written on Nifty (Time-stamped transactions data) for the time period between 1st January 2002 and 31st December 2005 using box-spread arbitrage strategy. The advantages of box-spreads include reduced joint hypothesis problem since there is no consideration of pricing model or market equilibrium, no consideration of inter-market non-synchronicity since trading box spreads involve only one market, computational simplicity with less chances of mis- specification error, estimation error and the fact that buying and selling box spreads more or less repli- cates risk-free lending and borrowing. One thousand three hundreds and fifty eight exercisable box- spreads were found for the time period considered of which 78 Box spreads were found to be profit- able after incorporating transaction costs (32 profitable box spreads were identified for the year 2002, 19 in 2003, 14 in 2004 and 13 in 2005) The results of our study suggest that internal option market efficiency has improved over the years for S&P CNX Nifty Index options of NSE India.
    [Show full text]
  • 11 Option Payoffs and Option Strategies
    11 Option Payoffs and Option Strategies Answers to Questions and Problems 1. Consider a call option with an exercise price of $80 and a cost of $5. Graph the profits and losses at expira- tion for various stock prices. 73 74 CHAPTER 11 OPTION PAYOFFS AND OPTION STRATEGIES 2. Consider a put option with an exercise price of $80 and a cost of $4. Graph the profits and losses at expiration for various stock prices. ANSWERS TO QUESTIONS AND PROBLEMS 75 3. For the call and put in questions 1 and 2, graph the profits and losses at expiration for a straddle comprising these two options. If the stock price is $80 at expiration, what will be the profit or loss? At what stock price (or prices) will the straddle have a zero profit? With a stock price at $80 at expiration, neither the call nor the put can be exercised. Both expire worthless, giving a total loss of $9. The straddle breaks even (has a zero profit) if the stock price is either $71 or $89. 4. A call option has an exercise price of $70 and is at expiration. The option costs $4, and the underlying stock trades for $75. Assuming a perfect market, how would you respond if the call is an American option? State exactly how you might transact. How does your answer differ if the option is European? With these prices, an arbitrage opportunity exists because the call price does not equal the maximum of zero or the stock price minus the exercise price. To exploit this mispricing, a trader should buy the call and exercise it for a total out-of-pocket cost of $74.
    [Show full text]
  • Problem Set 2 Collars
    In-Class: 2 Course: M339D/M389D - Intro to Financial Math Page: 1 of 7 University of Texas at Austin Problem Set 2 Collars. Ratio spreads. Box spreads. 2.1. Collars in hedging. Definition 2.1. A collar is a financial position consiting of the purchase of a put option, and the sale of a call option with a higher strike price, with both options having the same underlying asset and having the same expiration date Problem 2.1. Sample FM (Derivatives Markets): Problem #3. Happy Jalape~nos,LLC has an exclusive contract to supply jalape~nopeppers to the organizers of the annual jalape~noeating contest. The contract states that the contest organizers will take delivery of 10,000 jalape~nosin one year at the market price. It will cost Happy Jalape~nos1,000 to provide 10,000 jalape~nos and today's market price is 0.12 for one jalape~no. The continuously compounded risk-free interest rate is 6%. Happy Jalape~noshas decided to hedge as follows (both options are one year, European): (1) buy 10,000 0.12-strike put options for 84.30, and (2) sell 10,000 0.14-strike call options for 74.80. Happy Jalape~nosbelieves the market price in one year will be somewhere between 0.10 and 0.15 per pepper. Which interval represents the range of possible profit one year from now for Happy Jalape~nos? A. 200 to 100 B. 110 to 190 C. 100 to 200 D. 190 to 390 E. 200 to 400 Solution: First, let's see what position the Happy Jalape~nosis in before the hedging takes place.
    [Show full text]
  • 34-67752; File No
    SECURITIES AND EXCHANGE COMMISSION (Release No. 34-67752; File No. SR-CBOE-2012-043) August 29, 2012 Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change Relating to Spread Margin Rules I. Introduction On May 29, 2012, the Chicago Board Options Exchange, Incorporated (“Exchange” or “CBOE”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)1 and Rule 19b-4 thereunder,2 a proposed rule change to amend CBOE Rule 12.3 to propose universal spread margin rules. The proposed rule change was published for comment in the Federal Register on June 7, 2012.3 The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change. II. Description of the Proposal An option spread is typically characterized by the simultaneous holding of a long and short option of the same type (put or call) where both options involve the same security or instrument, but have different exercise prices and/or expirations. To be eligible for spread margin treatment, the long option may not expire before the short option. These long put/short put or long call/short call spreads are known as two-legged spreads. Since the inception of the Exchange, the margin requirements for two-legged spreads have been specified in CBOE margin rules.4 The margin requirement for a two-legged spread 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Securities Exchange Act Release No. 67086 (May 31, 2012), 77 FR 33802.
    [Show full text]
  • Shipping Derivatives and Risk Management
    Shipping Derivatives and Risk Management Amir H. Alizadeh & Nikos K. Nomikos Faculty of Finance, Cass Business School, City University, London palgrave macmiUan Contents About the Authors . xv Preface and Acknowledgements xvi Foreword xviii Figures xix Tables xxv Chapter 1: Introduction to Risk Management and Derivatives 1 1.1 Introduction 1 1.2 Types of risks facing shipping companies 3 1.3 The risk-management process 6 1.3.1 Why should firms manage risks? 7 1.4 Introduction to derivatives: contracts and applications 8 1.4.1 Forward contracts 9 1.4.2 Futures contracts 10 1.4.3 Swaps 12 1.4.4 Options 12 1.5 Applications and uses of financial derivatives 13 1.5.1 Risk management 13 1.5.2 Speculators 14 1.5.3 Arbitrageurs 14 1.5.4 The price discovery role of derivatives markets 15 1.5.5 Hedging and basis risk 16 1.5.6 Theoretical models of futures prices: the cost-of-carry model 18 1.6 The organisation of this book 20 Appendix 1 .A: derivation of minimum variance hedge ratio 23 Chapter 2: Introduction to Shipping Markets 24 2.1 Introduction 24 2.2 The world shipping industry 24 2.3 Market segmentation in the shipping industry 28 2.3.1 The container shipping market 30 2.3.2 The dry-bulk market 31 2.3.3 The tanker market 34 vi Contents 2.4 Shipping freight contracts 35 2.4.1 Voyage charter contracts 37 2.4.2 Contracts of affreightment 39 2.4.3 Trip-charter contracts 40 2.4.4 Time-charter contracts 41 2.4.5 Bare-boat or demise charter contracts 41 2.5 Definition and structure of costs in shipping 42 2.5.1 Capital costs 42 2.5.2 Operating costs
    [Show full text]
  • Options Trading
    OPTIONS TRADING: THE HIDDEN REALITY RI$K DOCTOR GUIDE TO POSITION ADJUSTMENT AND HEDGING Charles M. Cottle ● OPTIONS: PERCEPTION AND DECEPTION and ● COULDA WOULDA SHOULDA revised and expanded www.RiskDoctor.com www.RiskIllustrated.com Chicago © Charles M. Cottle, 1996-2006 All rights reserved. No part of this publication may be printed, reproduced, stored in a retrieval system, or transmitted, emailed, uploaded in any form or by any means, electronic, mechanical photocopying, recording, or otherwise, without the prior written permission of the publisher. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author or the publisher is engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers. Published by RiskDoctor, Inc. Library of Congress Cataloging-in-Publication Data Cottle, Charles M. Adapted from: Options: Perception and Deception Position Dissection, Risk Analysis and Defensive Trading Strategies / Charles M. Cottle p. cm. ISBN 1-55738-907-1 ©1996 1. Options (Finance) 2. Risk Management 1. Title HG6024.A3C68 1996 332.63’228__dc20 96-11870 and Coulda Woulda Shoulda ©2001 Printed in the United States of America ISBN 0-9778691-72 First Edition: January 2006 To Sarah, JoJo, Austin and Mom Thanks again to Scott Snyder, Shelly Brown, Brian Schaer for the OptionVantage Software Graphics, Allan Wolff, Adam Frank, Tharma Rajenthiran, Ravindra Ramlakhan, Victor Brancale, Rudi Prenzlin, Roger Kilgore, PJ Scardino, Morgan Parker, Carl Knox and Sarah Williams the angel who revived the Appendix and Chapter 10.
    [Show full text]
  • Strike Price
    Introduction Options’ Basics Put-Call Parity Overall Shape of Call Box Spread Parity Takeaways Applying Principles of Quantitative Finance to Modeling Derivatives of Non-Linear Payoffs Christopher Ting http://www.mysmu.edu/faculty/christophert/ Christopher Ting k: [email protected] T: 6828 0364 ÿ: LKCSB 5036 October 3, 2017 Christopher Ting QF 101 October 3, 2017 1/46 Introduction Options’ Basics Put-Call Parity Overall Shape of Call Box Spread Parity Takeaways Table of Contents 1 Introduction 2 Options’ Basics 3 Put-Call Parity 4 Overall Shape of Call 5 Box Spread Parity 6 Takeaways Christopher Ting QF 101 October 3, 2017 2/46 Introduction Options’ Basics Put-Call Parity Overall Shape of Call Box Spread Parity Takeaways Code of King Hammurabi, 1792 to 1750 BC Picture source: Code of Hammurabi Picture source: The Louvre Christopher Ting QF 101 October 3, 2017 3/46 Introduction Options’ Basics Put-Call Parity Overall Shape of Call Box Spread Parity Takeaways King Hammurabi’s 48-th Code If any one owe a debt for a loan, and a storm prostrates the grain, or the harvest fail, or the grain does not grow for lack of water; in that year he need not give his creditor any grain, he washes his debt-tablet in water and pays no rent for this year. From the perspective of a creditor, ¡ Underlying asset: grain ¡ Expiration: at harvest ¡ Delivery mode: physical ¡ Condition: if not (a storm prostrates the grain, or the harvest fail, or the grain does not grow for lack of water) Christopher Ting QF 101 October 3, 2017 4/46 Introduction Options’ Basics Put-Call Parity Overall Shape of Call Box Spread Parity Takeaways Discussion ¡ Is the 48-th Code fair to the farmer? ¡ Is the 48-th Code fair to the creditor? ¡ Why should the creditor lend to the farmer in the first place? Christopher Ting QF 101 October 3, 2017 5/46 Introduction Options’ Basics Put-Call Parity Overall Shape of Call Box Spread Parity Takeaways Publicly Listed Options ¡ Options used to be, and still is traded OTC.
    [Show full text]
  • Risk Management Applications of Derivatives
    STUDY SESSION 17 Risk Management Applications of Derivatives This study session addresses risk management strategies using forwards and futures, option strategies, floors and caps, and swaps. These derivatives can be used for a variety of risk management purposes, including modification of portfolio duration and beta, implementation of asset allocation changes, and creation of cash market instruments. A growing number of security types now have embedded derivatives, and portfolio managers must be able to account for the effects of derivatives on the return/risk profile of the security and the portfolio. After completing this study ses- sion, the candidate will better understand advantages and disadvantages of derivative strategies, including the difficulties in creating and maintaining a dynamic hedge. READING ASSIGNMENTS Reading 32 Risk Management Applications of Forward and Futures Strategies by Don M. Chance, PhD, CFA Reading 33 Risk Management Applications of Option Strategies by Don M. Chance, PhD, CFA Reading 34 Risk Management Applications of Swap Strategies by Don M. Chance, PhD, CFA 2019 Level III CFA Program Curriculum. © 2018 CFA Institute. All rights reserved. Study Session 17 2 LEARNING OUTCOMES READING 32. RISK MANAGEMENT APPLICATIONS OF FORWARD AND FUTURES STRATEGIES The candidate should be able to: a demonstrate the use of equity futures contracts to achieve a target beta for a stock portfolio and calculate and interpret the number of futures contracts required; b construct a synthetic stock index fund using cash and stock
    [Show full text]
  • Fineconslides2017
    Introduction. Financial Economics Slides Howard C. Mahler, FCAS, MAAA These are slides that I have presented at a seminar or weekly class. The whole syllabus of Exam MFE is covered. For the new syllabus introduced with the July 2017 Exam. At the end is my section of important ideas and formulas. Use the bookmarks / table of contents in the Navigation Panel in order to help you find what you want. This provides another way to study the material. Some of you will find it helpful to go through one or two sections at a time, either alone or with a someone else, pausing to do each of the problems included. All the material, problems, and solutions are in my study guide, sold separately.1 These slides are a useful supplement to my study guide, but are self-contained. There are references to page and problem numbers in the latest edition of my study guide, which you can ignore if you do not have my study guide. The slides are in the same order as the sections of my study guide. At the end, there are some additional questions for study. SectionPages # Section Name A 1 9-17Introduction 2 18-31Financial Markets and Assets 3 32-53European Call Options B 4 54-86European Put Options 5 87-174Named Positions 6 175-224Forward Contracts C 7 225-243Futures Contracts 8 244-281Properties of Premiums of European Options 9 282-336Put-Call Parity 10 337-350Bounds on Premiums of European Options 11 351-369Options on Currency D 12 370-376Exchange Options 13 377-382Options on Futures Contracts 14 383-391Synthetic Positions E 15 392-438American Options 16 439-463Replicating Portfolios 17 464-486Risk Neutral Probabilities 18 487-494Random Walks F 19 495-559Binomial Trees, Risk Neutral Probabilities 20 560-579Binomial Trees, Valuing Options on Other Assets 1 My practice exams are also sold separately.
    [Show full text]
  • IFM-01-18 Page 1 of 104 SOCIETY of ACTUARIES EXAM IFM
    SOCIETY OF ACTUARIES EXAM IFM INVESTMENT AND FINANCIAL MARKETS EXAM IFM SAMPLE QUESTIONS AND SOLUTIONS DERIVATIVES These questions and solutions are based on the readings from McDonald and are identical to questions from the former set of sample questions for Exam MFE. The question numbers have been retained for ease of comparison. These questions are representative of the types of questions that might be asked of candidates sitting for Exam IFM. These questions are intended to represent the depth of understanding required of candidates. The distribution of questions by topic is not intended to represent the distribution of questions on future exams. In this version, standard normal distribution values are obtained by using the Cumulative Normal Distribution Calculator and Inverse CDF Calculator For extra practice on material from Chapter 9 or later in McDonald, also see the actual Exam MFE questions and solutions from May 2007 and May 2009 May 2007: Questions 1, 3-6, 8, 10-11, 14-15, 17, and 19 Note: Questions 2, 7, 9, 12-13, 16, and 18 do not apply to the new IFM curriculum May 2009: Questions 1-3, 12, 16-17, and 19-20 Note: Questions 4-11, 13-15, and 18 do not apply to the new IFM curriculum Note that some of these remaining items (from May 2007 and May 2009) may refer to “stock prices following geometric Brownian motion.” In such instances, use the following phrase instead: “stock prices are lognormally distributed.” November 2020 correction: Question 1 was edited to correct an error in the earlier version. Copyright 2018 by the Society of Actuaries IFM-01-18 Page 1 of 104 Introductory Derivatives Questions 1.
    [Show full text]
  • CHAPTER 1 Introduction to Derivative Instruments
    CHAPTER 1 Introduction to Derivative Instruments In the past decades, we have witnessed the revolution in the trading of deriva- tive securities in financial markets around the world. A financial derivative may be defined as a security whose value depends on the values of other more basic underlying variables, like the prices of other traded securities, interest rates, commodity prices or stock indices. The three most basic derivative se- curities are forwards, options and swaps. A forward contract (called a futures contract if traded on an exchange) is an agreement between two parties that one party agrees to purchase an asset from the counterparty on a certain date in the future for a pre-determined price. An option gives the holder the right (but not the obligation) to buy or sell an asset by a certain date for a pre- determined price. A swap is a financial contract between two counterparties to exchange cash flows in the future according to some pre-arranged format. There has been a great proliferation in the variety of derivative securities traded and new derivative products are being invented continuously over the years. The development of pricing methodologies of new derivative securities has been one of the major challenges in the field of financial engineering. The theoretical studies on the use and risk management of financial derivatives have been commonly known as the Rocket Science on Wall Street. In this book, we concentrate on the study of pricing models for financial derivatives. Derivatives trading forms an integrated part in portfolio manage- ment in financial firms.
    [Show full text]