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CFA level 2 > Derivatives > Flashcards

Derivatives Flashcards

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1
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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2
Q

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

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3
Q

What is carry and reverse carry arbitrage?

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4
Q

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

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5
Q

How to value forward/futures with underlying cashflows?

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6
Q

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

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7
Q

payoff formula for FRA short/long?

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8
Q

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

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9
Q

Describe forward/futures with known yield?

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10
Q

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

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11
Q

Valuing a fixed income forward example?

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12
Q

Valuing a currency forward example?

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13
Q

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

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14
Q

How to get the fixed rate of interest rate swap?

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15
Q

Formula for value of swap?

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16
Q

What is a currency swap and how does it work?

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17
Q

Valueing a currency swap example?

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18
Q

Explain what an equity swap is and how it works?

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19
Q

How is an equity swap valued?

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20
Q

Equity swap value example

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21
Q

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

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22
Q

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

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23
Q

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

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24
Q

2 period bimonial model: what is the hedge ratio?

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25
Q

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

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26
Q

What are the differences between valuing American and european options?

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27
Q

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

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28
Q

How to adjust for dividends and the adjustment for US?

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29
Q

How do interest rate options work with 2p binomial?

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30
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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31
Q

What are the 10 BSM assumptions?

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32
Q

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

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33
Q

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

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34
Q

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

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35
Q

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

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36
Q

BSM applied to equities and currencies?

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37
Q

Explain the black model for options on futures?

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38
Q

Explain how moneyness affects the probability of exercise?

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39
Q

Explain the black model with interest rates

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40
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

41
Q

Example of how caps work with 2p binomial?

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42
Q

Explain how FRA floors work?

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43
Q

What is a swaption?

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44
Q

What happens to the black model with a swaption?

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45
Q

Greeks: What is delta?

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46
Q

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

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47
Q

What is delta hedging and how to do it?

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47
Q

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

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48
Q

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

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49
Q

How does gamma help with approximating call price?

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50
Q

Greeks: What is theta? Can it be hedged?

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51
Q

Greeks: what is vega?

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52
Q

Greeks: what is Rho?

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53
Q

What is implied volatility?

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54
Q
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