Derivatives I Flashcards
Treasury bill future
Quoted as annualized discount yield
Treasury bond future
(1) Face value = $100k
(2) Deliverable
(3) Traded for treasuries > 15 years
(4) Measured in 32nds
(4) Ability to deliver any bond of choosing to satisfy claim
Interest rate options
(1) Same as calls/puts only, strike is an interest rate and underlying asset is a reference rate like LIBOR
(2) Payout is adjusted if period is less than one year, i.e. (LIBOR - 5%) * (days/360) * notional
Put call parity
Call option + cash = put option + stock
Put call parity formula
call option price + strike/(1+risk free rate)^t = put option price + stock price
Swaps
(1) agreement to exchange series of cash flows
(2) at each settlement date, payments are netted
(3) example, fixed to floating
(4) Typically no payment at initiation
(5) custom/OTC
Open end fund
Mutual fund
(1) Fund is the redeemer
12b-1 Fees
Annual fees that mutual funds charge
Real estate index appraisal issues
Some real estate indices use appraisal values rather than market prices, resulting in much lower volatility than is actual.
REITs are based on market value, but also include leverage and will be volatile.
Real estate valuation - cost method
Replacement cost of improvements + estimate for value of land
Real estate valuation - sales comparison method
Prices of similar properties from recent transactions.
Real estate valuation - Hedonic Method
Similar to sales comparison, uses regression model to determine price of certain attribute and add those in based on what the home has.
Real estate valuation - income method
Uses discounted cash flows to determine what the property is worth.
Venture stages (3)
(1) Seed - R&D
(2) Early
(3) Later
Venture - later stage (2)
(1) Second stage - producing and selling product, no income yet.
(2) Third stage - fund a major expansion
