Study your flashcards anywhere!
Download the official Cram app for free >
 Shuffle
Toggle OnToggle Off
 Alphabetize
Toggle OnToggle Off
 Front First
Toggle OnToggle Off
 Both Sides
Toggle OnToggle Off
 Read
Toggle OnToggle Off
How to study your flashcards.
Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key
Up/Down arrow keys: Flip the card between the front and back.down keyup key
H key: Show hint (3rd side).h key
A key: Read text to speech.a key
112 Cards in this Set
 Front
 Back
Question

Answer


Future profit/loss (formula)

Future profit/loss = ticks x tick value x contracts


Simple Basis (formula)

Basis = Cash price  Futures price


Theoretical Basis (formula)

Theoretical Basis = Cash Price  Fair Value


Value Basis (formula)

Value Basis = Fair Value  Future


Put/Call Parity (formula  Nondividend paying stock  ConDis)

C  P = S  K * e^(rt)


Put/Call Parity (formula  Nondividend paying stock  DisDis)

C  P = S  K / (1 + rt)


Put/Call Parity (formula  Dividend paying stock  ConDis)

C  P = S  D  K * e^(rt)


Put/Call Parity (formula  Dividend paying stock  DisDis)

C  P = S  D  K / (1 + rt)


Put/Call Parity (formula  Stock Index Options  ConDis)

C  P = S * e^(dt)  K * e^(rt) (S = cash price of index, d = annual rate continuous dividend yield)


Put/Call Parity (formula  Stock Index Options  DisDis)

C  P = S / (1 + dt)  K / (1 + rt) (S = cash price of index)


Put/Call Parity (formula  Currency Options  ConDis)

C  P = S * e^(ft)  K * e^(rt) (S = spot price of currency, f = interest earned on currency)


Put/Call Parity (formula  Currency Options  DisDis)

C  P = S / (1 + ft)  K / (1 + rt) (S = spot price of currency)


Put/Call Parity (formula  Futures  premium margined)

C  P = S  K (C = call price, P = put price, S = stock price, K = exercise price)


Put/Call Parity (formula  Futures  Premium paid upfront  ConDis)

C  P = S * e^(rt)  K * e^(rt) (S = price of the future)


Put/Call Parity (formula  Futures  Premium paid upfront  DisDis)

C  P = S / (1 + rt)  K / (1 + rt) (S = price of the future)


Long Call (Key Formulae)

MaRi: premium paid, MaRe: unlimited, BEaex: exercise price + premium.


Long Put (Key Formulae)

MaRi: premium paid, MaRe: exercise price  premium, BEaex: exercise price + premium.


Short Put (Key Formulae)

MaRi: exercise price  premium, MaRe: premium received, BEaex: exercise price  premium.


Short Call (Key Formulae)

MaRi: unlimited, MaRe: premium received, BEaex: exercise price + premium.


bull spread (Key Formulae calls)

MaRi: net initial debit, MaRe: difference between strikes  initial debt, BEaex: lower strike + initial debit.


bull spread (Key Formulae puts)

MaRi: difference between strikes  initial credit, MaRe: net initial credit, BEaex: higher strike + initial credit.


bear spread (Key Formulae calls)

MaRi: difference between strikes  initial credit, MaRe: net initial credit, BEaex: lower strike + initial credit.


bear spread (Key Formulae puts)

MaRi: net initial debit, MaRe: difference between strikes  initial debit, BEaex: higher strike price  initial debit.


synthetic long (Key Formulae)

MaRi: exercise price +/ net initial debit/credit, MaRe: unlimited, BEaex: exercise price +/ net initial debit/credit.


synthetic short (Key Formulae)

MaRi: unlimited, MaRe: exercise price /+ net initial debit/credit, BEaex: exercise price /+ net initial debit/credit.


synthetic long call (Key Formulae)

MaRi: initial value of stock/future  exercise price + put premium, MaRe: unlimited, BEaex: initial value of stock/future + put premium.


synthetic short call/covered put (Key Formulae)

MaRi: unlimited, MaRe: initial value of stock/future  exercise price + put premium, BEaex: initial value of stock/future + put premium.


synthetic short put/covered call (Key Formulae)

MaRi: initial value of stock/future  call premium, MaRe: exercise price  initial value stock/future + call premium, BEaex: initial value of stock/future  call premium.


synthetic long put (Key Formulae)

MaRi: exercise price  initial value of stock/future + call premium, MaRe: initial value of stock/future  call premium, BEaex: initial value of stock/future  call premium.


diagonal spread (Key Formulae)

MaRi: difference between strikes  initial credit or initial debit, MaRe: at shortdated expiry, limited, BEaex: dependent on relative movements of premium.


cylinder (Key Formulae)

MaRi: limited, cap set by put, MaRe: limited, floor set by call, BEaex: stock price +/ net initial debit/credit.


long straddle (Key Formulae)

MaRi: premiums paid, MaRe: unlimited, BEaex: upside: exercise price + both premiums, downside: exercise price  both premiums.


short straddle (Key Formulae)

MaRi: unlimited, MaRe: limited to premiums, BEaex: upside: exercise price + both premiums, downside: exercise price  both premiums.


long strangle (Key Formulae  call strike > put strike)

MaRi: limited to premiums, MaRe: unlimited, BEaex: upside: higher strike + premium, downside: lower strike  premium.


long strangle (Key Formulae  call strike < put strike)

MaRi: limited to premium  difference between strikes, MaRe: unlimited, BEaex: upside: lower strike + premiums, downside: higher strike  premiums.


short strangle (Key Formulae  call strike > put strike)

MaRi: unlimited, MaRe: premiums received, BEaex: upside: higher strike + premiums, downside: lower strike  premiums.


short strangle (Key Formulae  call strike < put strike)

MaRi: unlimited, MaRe: premiums received  difference between strikes, BEaex: upside: lower strike + premiums, downside: higher strike  premiums.


short butterfly (Key Formulae)

MaRi: difference between one set of strikes less initial credit, MaRe: net initial credit, BEaex: lower strike + credit, higher strike  credit


long butterfly (Key Formulae)

MaRi: net initial debit, MaRe: difference between one set of strikes  initial debit, BEaex: lower strike + debit, higher strike  debit.


ratio back spread (Key Formulae puts)

MaRi: difference between strikes and net initial debit, MaRe: breakeven value, BEaex: lower strike  initial debit  difference between strikes.


ratio spread (Key Formulae calls)

MaRi: unlimited, MaRe: difference between strikes + initial credit, BEaex: higher strike + maximum profit.


horizontal spread (Key Formulae)

MaRi: net initial debit, MaRe: indeterminate, subject to relative changes in premiums, BEaex: indeterminate, subject to relative changes in premiums.


conversion (Key Formulae)

MaRi: none, MaRe: extend of pricing anomaly.


reversals (Key Formulae)

MaRi: none, MaRe: extend of pricing anomaly.


box (Key Formulae)

MaRi: none, MaRe: extend of pricing anomaly.


Simple Interest (formula)

i1 = D0 * r


Terminal value simple interest (formula)

D1 = D0 * (1+r)


Terminal value simple interest nth year (formula)

Dn = D0 * (1 + n * r)


Compound Interest (formula)

in = Dn1 * r


Terminal value compound interest (formula)

Dn = D0 * (1+ r)^n


APR (formula)

APR = (1+ r/m)^m  1


Discount factor at Time n (formula)

DFn = 1 / (1+ r)^n, r = discount rate, n = number of years


DVM (formula)

Market value = PV of the future expected receipts discounted at the investors required rate of return.


DDM (formula)

Value of Stock = Dividend per share / (Discount Rate  Dividend growth rate)


Volatility (formula)

σ = sqrt( sum((r  ř)^2) / n)


Volatility of 2 securities (formula)

σa+b = sqrt(pa^2*σa^2 + pb^2*σb^2 + 2pa*pb*σa*σb*cor(ab)), p = proportion of funds invested in each security, cor = correlation between the returns on two securities.


Probability  idealistic (formula)

P(E) = The number of ways E can occur / Total number of equally likely outcomes


Probability  realistic (formula)

P(E) = The number of observed occurrences of E / Total number of observed occurrences


Binomial Expression (formula)

P(r) = n! / (r! * (n  r)! * p^r * (1  p)^(n  r)


Z value (formula)

Z = (x  μ) / σ, μ = the mean, x = the observed value


Continuously compounded riskfree rate R (formula)

R = e^(r*t), r = quoted annual rate, t time period as proportion of a year.


Hedge Ratio (formula 1)

h = (Cu  Cd) / (Su  Sd), Cu = call value up, Cd = call value down, Su = share price up, Sd = share price down


Hedge Ratio (formula 2)

(hS  C) (e^rt) = hSu  Cu, (hS  C) (e^rt) = hSd  Cd


Binomial Model (formula probability upmove  equity index option)

p = (e^(rt  yt)  d) / (u  d), y = dividend yield


Hedge Ratio (formula  equity index options)

h = ((Cu  Cd) / (Su  Sd)) * e^(yt), Cu = call value up, Cd = call value down, Su = share price up, Sd = share price down


Black Scholes (formula call)

C = S*N(d1)  X * e^(rt) * N(d2)


Black Scholes (formula d1)

d1 = (ln(S/X) + (r + 0.5 * σ^2) * t) / (σ * sqrt(t))


Black Scholes (formula d2)

d2 = (ln(S/X) + (r  0.5 * σ^2) * t) / (σ * sqrt(t)), or d2 = d1  σ * sqrt(t)


Black Scholes (formula put)

P = X * e^(rt) * N(d2)  S * N(d1)


Black Scholes (formula call on stock index)

C = S * e^(dt) * N(d1)  X * e^(rt) * N(d2)


Black Scholes (formula d1 of call on stock index)

d1 = (ln(S/X) + (r  d + 0.5 * σ^2) * t) / (σ * sqrt(t))


Black Scholes (formula call on a currency)

C = S * e^(rft) * N(d1)  X * e^(rdt) * N(d2), rf = the cont. Comp. Interest rate in domestic currency, rd = same for foreign currency


Black Scholes (formula d1 of call on a currency)

d1 = (ln(S/X) + (rd  rf + 0.5 * σ^2) * t) / (σ * sqrt(t))


Black Scholes (formula call on futures/forwards)

C = F * e^(rt) * N(d1)  X * e^(rt) * N(d2), F = the future/forward price


Black Scholes (formula d1 of call on a futures/forwards)

d1 = (ln(F/X) + (0.5 * σ^2) * t) / (σ * sqrt(t))


Black Scholes (formula call on futures/forwards, premiums immediately settled)

C = F * N(d1)  X * N(d2), F = the future/forward price


Delta (formula)

D = Change in value of option / Change in value of underlying security


Greeks on non dividend paying stock (formula)

Delta Call: N(d1), Delta Put: N(d1)


Greeks on dividend paying stock (formula)

Delta Call: N(d1), Delta Put: N(d1)


Greeks on stock index options (formula)

Delta Call: e^(dt)*N(d1), Delta Put: e^(dt)*N(d1)


Greeks on currency options (formula)

Delta Call: e^(ft)*N(d1), Delta Put: e^(ft)*N(d1)


Greeks on future options premium margined (formula)

Delta Call: N(d1), Delta Put: N(d1)


Greeks on future options premium upfront (formula)

Delta Call: e^(rt)*N(d1), Delta Put: e^(rt)*N(d1)


Flat Yield (formula)

Y = Gross Coupon / Market Price


Dirty Price Gilt Market (formula cum div)

Price of Cum Div Stock: Clean Price + (Nominal value * 0.5 * Coupon) * (No. Days from the last payment day to one calendar day before settlement (inclusive) / No. Of days in interest period)


Dirty Price Gilt Market (formula ex div)

Price of ExDiv Stock: Clean Price + (Nominal value * 0.5 * Coupon) * (No. Days from the settlement day to the calendar day before settlement (inclusive) / No. Of days in interest period)


Fair Value (formula)

Fair Value = Cash price + Cost of carry


Fair Value (bond future formula)

Fair Value = Dirty price of bond + Cost of financing over holding period  Interest received over holding period and accrued to delivery


Invoice amount (formula)

Invoice Amount = Price of future * Price Factor + Accrued Interest


Invoice amount bond future (formula)

Bond Future = EDSP * Price factor * Scaling factor * No. Of contracts + Accrued Interest


Fair Value (bond future formula)

Fair Value = Futures Price * Price Factor


Basis (bond future formula)

Gross Basis = Cash price  (Futures Price * Price Factor)


Zero Gross Basis Future Price (formula)

Zero Gross Basis Future Price = Bond Price / Price Factor


Value Basis of Bond Future (formula)

Price of CTD * (Actual repo rate  Implied repo rate * Days / 360 or 365)


Futures Price CTD (formula)

Futures Price = (Price of deliverable bond + Finance cost  Bond Income) / Price Factor


Theoretical Futures Price CTD (formula)

Fair Price = (Dirty Price + (Dirty Price * Finance Rate * Days in the holding period / 365)  Interest paid and accrued) / Price Factor


Implied Repo Rate (formula)

Implied Repo Rate = ( Invoice amount  Initial cost ) / ( Initial cost * Days in holding period / 365 )


Implied Repo Rate  interest payment in holding period (formula)

Implied Repo Rate = ( Invoice amount  Initial cost  Interest received ) / ( Initial cost * Days in holding period / 365 )


Implied Repo Rate  dividend received (formula)

Implied Repo Rate = ( Invoice amount  Initial cost  Interest received ) / ( ( Initial cost * Days in holding period / 365 )  ( Interest received * Days between receipt of interest and delivery date of future ) / 365 )


Hedging CTD (formula)

Number of contracts = ( Nominal value of CTD / Face Value of future ) * Price Factor of CTD


BPV (formula)

BPV = Modified duration * Dirty Price of Bond * 0.01 / 100


Hedging NonCTD (formula)

Number of contracts = ( Nominal Value of Portfolio / Nominal Value of future ) * Price factor of CTD * ( BPV hedge bond / BPV CTD )


Hedging NonCTD (formula better)

Number of contracts = ( Nominal value of hedge bind / Nominal value of future ) * Price factor of CTD * ( MD bond / MD CTD ) * ( Dirty price of bond / Dirty price of CTD )


Hedging NonCTD (formula using GRY)

Number of contracts = ( Nominal value of hedge bond / Nominal value of future ) * ( Price factor of CTD / Price of CTD ) * ( Duration bond / Duration CTD ) * ( 1 + GRY of CTD ) / ( 1 + GRY of hedge bond ) )


Interest Rate Parity (formula)

Forward Rate = ( 1 + rd) / ( 1 + rf ) * Spot Rate, rd = domestic exchange rate, rf = foreign exchange rate


Hedging with futures (formula)

σ total ^2 = σu^2 + σs^2


Weighted average portfolio (formula)

( Holding_1 * Price_1 * Beta_1 + ... + Holding_n * Price_n * Beta_n ) / (Holding_1 * Price_1 + ... + Holding_n * Price_n )


Calculate number of futures (formula)

Value of Portfolio / (Future * Tick value ) * Portfolio Beta, rounding up


Hedging with stock options (formula)

No. of Puts = No. Of shares held / No. Of shares per contract


Hedging with stock options (formula better)

No. of Puts = ( No. Of shares held / Contract size ) * ( 1 / Option delta )


settlement amount (FRA  formula)

((reference rate  contract rate) * contract period/day basis * contract amount) / ( 1 + reference rate * contract period/day basis))
