Analysis of Derivatives for the CFA Program by Don M. Chance

By Don M. Chance

Research of Derivatives for the CFA® application introduces scholars and practitioners to a pragmatic probability administration method of derivatives. The textbook captures present perform and displays what the final funding practitioner must learn about derivatives. It doesn't easily bring a proof of assorted derivatives tools and positions yet presents motivation for each derivatives place by way of explaining what the executive desires to accomplish sooner than addressing the main points of the location.

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Sample text

The dealer gives him a quote of $20,200,000. So, in three months, the manager will sell the stock to the dealer and receive $20,200,000. ' -- ... --. -- In Section 4, we shall learn how to calculate forward prices such as this one. Ignoring those costs, there would be no difference in doing forward contracts on individual stocks or a single forward contract on a portfolio. Because of the non-linearity of their payoffs, this is not true for options. A portfolio of options is not the same as an option on a portfolio, but a portfolio of forward contracts is the same as a forward contract on a portfolio, ignoring the aforementioned costs.

A. Futures contracts are private transactions. B. Forward contracts are marked to market daily. C. Futures contracts have more default risk than forward contracts. D. Forward contracts require that both parties to the transaction have a high degree of creditworthiness. 4. Which of the following statements is least accurate? A. Futures contracts are easier to offset than forward contracts. B. Forward contracts are generally more liquid than futures contracts. C. Forward contracts are easier to tailor to specific needs than futures contracts.

In other words, the dealer would have to pay £187,500 in cash. 25 percent, a loss of £187,500. The forward contract offsets this loss. Of course, in reality, the portfolio is not an index fund and such a hedge is not perfect, but as noted above, there are sometimes reasons for preferring that the forward contract be based on an index. THEEFFECTOF DIVIDENDS It is important to note the effect of dividends in equity forward contracts. Any equity portfolio nearly always has at least a few stocks that pay dividends, and it is inconceivable that any well-known equity index would not have some component stocks that pay dividends.

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