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Derivatives > Pricing and Valuation of Forward Commitments > Flashcards

Pricing and Valuation of Forward Commitments Flashcards

1
Q

Forward Rate Agreement
Long

A

Floating Rate Receiver - Pays Fixed Rate

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2
Q

How does a forward contract look for a FRA 3 x 9 Contract

A

Forward Rate (3,6)

3 - Months from now
6 - Months duration

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3
Q

Forward Rate Agreement

Short

A

Fixed Rate Receiver - Pays Floating Rate

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4
Q

FRA Long Position Formula

A

Receives floating, pays fixed
NA( Floating - Fixed x (Days / 360) ) / (1+ Floating Rate x Days/360))

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5
Q

FRA short Position Formula

A

Short - Receive Fixed, Pay floating rate
[ Na x ( Fixed - Floating * Days /360] / (1+fixed * Days /360)

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6
Q

Formula for “Cost to purchase deliverable bond”

A

ST + AI

Bond present price + Accured Interest Interest

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7
Q

Formula for “Cost To Deliver”

A

CTD = ST - (Ft x CF)

Bond Present Value - (Forward Price x Conversion Factor)

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8
Q

Fixed Income Forward Price Formula

A

F0 = [(S0+AI)-I/(1+r)^t] x (1+r)^t - Accured Interest

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9
Q

Qouted Fixed Income Forward Fomula

A

QF0 = F0 /Conversion Factor

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10
Q

Formula For Currency Forward price
f/d

A

Ff/d = Sf/d x [(1+rf) ^t / (1+rd)^t]

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11
Q

Formula For Currency Forward price
d/f

A

Fd/f = Sd/f x [(1+rd) ^t / (1+rf)^t]

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12
Q

What will the Forward price be if

Rf = Rd

A

F0 = S0

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13
Q

What will the Forward price be if

Rf > Rd

A

Ff/d > Sf/d

Fd/f < Sd/F

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14
Q

What will the Forward price be if

Rf < Rd

A

Ff/d < Sf/d

Fd/f > Sd/f

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15
Q

What is the value of a forward and swap contract at time 0

A

Zero
No value

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16
Q

Receives fixed Rate, and pays floating is the same as

A

Long fixed bond and short floating bond

17
Q

How to calculate PMT in Swap rate?

A

1 - Dfn / Sum of DF

18
Q

Formula for Value of Interest Rate Swap

A

( R fixed 0 - R fixed 1) x Notional Amount x sum of DF

19
Q

Who decideds which bond to deliver in a fixed income future contract

A

The seller after adjusting for conversion factor

20
Q

Formula for Swap Value

A

(R0 - Rt+1) x Notional Amount x ∑DF

∑DF is based on the years remaning

21
Q

What is the underlying in a interest rate swap

A

An interest rate

22
Q

Formula for “Receive Equity” in equity swaps

A

(NA x P0 / Pt+1) - NA x (Rfix x ∑DF + DFn)

23
Q

Company X is in the UK.
Company Y is in Japan.

They enter into a Fixed-for-Fixed currency Swap.

What kind of bond position is this similar to for both parties

A

Company X: Short a JPY bond and long GBP bond.

Company Y: Short GBP bond and Long JPY bond

Reason: They both have to make interest payment (short) in the counterparties currency, and receive (Long) interest payment of their domestic currency.

24
Q

The value of a futuers contract is the difference between…

A

Future price at experation - Futurers price of the previous day

25
Q

What does gamma (γ) represent in forward contract

A

Benefits

26
Q

What does theta (θ) represent in forward contract

A

Costs

27
Q

Formula for Forward contract

A

F0 = [S0 + Pv θ - Pv γ ] * (1+r)^t

Costs and benefits are discounted back to the present value

28
Q

What is the underlying asset in a interest rate option?

A

Underlying = FRA = LIBOR

29
Q

What position does a Long FRA have?

A

Borrower

30
Q

What position does a Short FRA have?

A

Lender

31
Q

Position of Long call in interest rate option

A

Call: Receive floating

32
Q

Position of long put in interest rate option

A

Receive fixed rate

33
Q

Position of Short put in interest rate option

A

Pay Fixed

34
Q

Position of Short call in interest rate option

A

Pay floating

35
Q

Payer Swaption

A

Pay fixed, Received floating

36
Q

Receiver Swaption

A

Receiver Fixed
Pay floating

Derivatives (2 decks)

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