Derivatives Flashcards
1
Q
FRA Cash Settlement Formula
A
= interest savings in % / discount factor
= [notional amt * (floating - forward) * (days/360)] / [ 1 + (floating * days/360)]
2
Q
fixed rate payer formula for plain vanilla swap
A
= (fixed rate - Libor) * (days/360) * (notional pricipal)
3
Q
put-call parity
A
portfolios with identical payoffs must sell for the same price to prevent arbitrage
S + P = C + X / (1+RFR)^2
owning a stock and a put on that stock is the same as owning a bond and the call on that bond
4
Q
protective put
A
share of stock with put option on the stock
5
Q
protective put payoff
A
in the money = X
out of the money = S
