Derivatives Flashcards
What is a credit derivative?
Seller provides protection to the buyer against the credit risk of the third party
What is the formula for put-call parity?
S+P=C+x/(1+r)
What is the forward price formula?
FV of spot price - FV of net benefits
What is convenience yield?
Benefit of holding an asset
For a long position: When is it better to own forwards rather than futures?
When interest rates and futures prices are uncorrelated. If own a future: profits from mark-to-market can be reinvested
What is replication and what is it used to value?
Creation of an asset from another asset.
Used to value swap contracts
What is the roll yield?
Difference between spot price and futures contract price
What is contango?
Futures prices are higher than spot price and forward curve is upward sloping. When little or no convenience yield.
What is the high water mark?
Amount that the fund has to reach (net of mgmt fees) to have the incentive fee kick in
What is a clawback provision?
Requires the general partner in PE to send out incentive fees to pay down limited partners until their investment is paid off.
What does the Sortino ratio measure?
Downside risk
