Derivatives Flashcards by toby riley | Brainscape

Q

What are the assumptions of arbitrage free pricing and valuation, notation for S, s, F,f,V,v? What is V0 for futures and forwards? What is convergence?

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What is the formula for futures/forwards with periodic and continuous compounding?

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Q

What is carry and reverse carry arbitrage?

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Q

How to value a forward/futures with no underlying cashflows?

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How to value forward/futures with underlying cashflows?

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Q

What is an FRA and what does it mean to be long/short?

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payoff formula for FRA short/long?

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Q

Describe fixed income forwards? Why is a conversion factor needed?

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Q

Describe forward/futures with known yield?

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Q

What is the concept of cheapest to deliver (CTD)? What is the cost to purchase deliverable bond?

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Q

Valuing a fixed income forward example?

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Q

Valuing a currency forward example?

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Q

What is an interest rate swap and how does it work?

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Q

How to get the fixed rate of interest rate swap?

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Formula for value of swap?

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Q

What is a currency swap and how does it work?

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Q

Valueing a currency swap example?

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Q

Explain what an equity swap is and how it works?

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Q

How is an equity swap valued?

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Equity swap value example

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Q

What is a contingent claim and what are the assumptions to value them?

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Q

Describe the 1-period binomial model and how to find the hedge ratio?

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Q

How to determine risk-neutral probability and how to then compute C0 or P0?

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Q

2 period bimonial model: what is the hedge ratio?

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Formula for C0 for 2 period binomial in one step and put-call parity?

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Q

What are the differences between valuing American and european options?

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How to find the early exercise put premium us over eu?

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How to adjust for dividends and the adjustment for US?

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How do interest rate options work with 2p binomial?

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Q

What are the BSM assumptions about percentage chanegs in stock prices, changes in successive periods and the stock price distribution (mean and std dev)?

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What are the 10 BSM assumptions?

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Q

BSM: formula for put, call and d1 and d2?

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Q

How can a call and a put be represented in terms of stock and bond?

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Q

Replication of buying/selling call/put? Formula for each

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Q

How is BSM modified to account for carry benefits? How do carry benfits affect puts and calls?

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BSM applied to equities and currencies?

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Q

Explain the black model for options on futures?

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Q

Explain how moneyness affects the probability of exercise?

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Q

Explain the black model with interest rates

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Q

Buying an ATM FRA call example? How are calls used for caps (hedging)?

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Used to to put a cap on loan payments

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Example of how caps work with 2p binomial?

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Q

Explain how FRA floors work?

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Q

What is a swaption?

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What happens to the black model with a swaption?

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Q

Greeks: What is delta?

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Q

How accurate is delta for small/large changes in S?

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Q

What is delta hedging and how to do it?

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Q

Greeks: What is Gamma? What can it be interpreted in terms of curvature?

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Q

What are the properties of Gamma and what risk does gamma measure?

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How does gamma help with approximating call price?

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Q

Greeks: What is theta? Can it be hedged?

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Greeks: what is vega?

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Greeks: what is Rho?

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Q

What is implied volatility?

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