fm part 2

The flashcards below were created by user contango on FreezingBlue Flashcards.

  1. Macaulay Duration
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    • denominator is price P(i)
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  2. Modified duration
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    • represents sensitivity of price change in the interest rate
  3. Convexity
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  4. Duration of a portfolio
    • = present value weighted average of the durations of the individual components.  
    • i.e., Durations are weighted by price
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  6. Conditions for Redington immunization
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    • 2. Image Upload or duration assets = duration liabilities
    • 3. Image Upload or convexity assets > convexity liabilities
  7. Conditions for full immunization with one cash outflow
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    • 2. Image Upload
    • 3. There is one cash inflow before and one after the outflow
  8. payoff and profit with purchased call option
    payoff Image Upload

    • profit Image Upload
    • K is the strike price
    • S_T is the spot price out T years
    • C is the premium for the option
  9. payoff and profit with purchased put option
    • payoffImage Upload
    • profit Image Upload

    • K is the strike price
    • S_T is the spot price out T years
    • C is the premium for the option
  10. payoff for long forward
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  11. Protective put
    • Long position in the asset + purchased put
    • Profit equivalent to purchased call
  12. Insuring a short position
    • Short position in the asset + purchased call
    • Profit equivalent to purchased put
  13. Covered call
    • Long position in the asset + written call
    • Profit equivalent to written put
  14. Covered put
    • Short position in the asset + written put
    • Profit equivalent to written call
  15. Put-call parity
    • Call(K,T) - Put(K,T) = PV(F0,T - K)
    • Recall how this relates to synthetic forwards vs long forwards.
    • Note PV(F) = S0
  16. Cash and carry
    • Short forward + purchased stock (with borrowed money)
    • Can be used for arbitrage and market-making
  17. Four ways to buy a stock
    • Outright purchase:
    • Receive stock at time 0
    • Pay S0 at time 0
    • Borrow to pay for stock:
    • Receive stock at time 0
    • Pay S0erT at time T
    • Prepaid forward:
    • Receive stock at time T
    • Pay at time 0
    • Image Upload = S0 - PV(dividends)
    • Forward contract:
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Author:
contango
ID:
283401
Card Set:
fm part 2
Updated:
2014-10-14 00:03:06
Tags:
part
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