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

By Don M. Chance

Research of Derivatives for the CFA® software introduces scholars and practitioners to a realistic chance administration method of derivatives. The textbook captures present perform and displays what the final funding practitioner must find out about derivatives. It doesn't easily bring a proof of assorted derivatives tools and positions yet offers motivation for each derivatives place by way of explaining what the executive desires to accomplish ahead of addressing the main points of the location.

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Extra resources for Analysis of Derivatives for the CFA Program

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Finally, we should note that unlike a stock, a bond carries the risk of default. A forward contract written on a bond must contain a provision to recognize how default is defined, what it means for the bond to default, and how default would affect the parties to the contract. In addition to forward contracts on individual bonds, there are also forward contracts on portfolios of bonds as well as on bond indices. The technical distinctions between forward contracts on individual bonds and collections of bonds, however, are relatively minor.

In some cases, it might be able to. It might be aware of another party with the exact opposite needs, but such a situation is rare. The market for financial products such as forward contracts is made up of wholesalers of risk management products who use their technical expertise, their vast network of contacts, and their access to critical financial market information to provide a more efficient means for end users to engage in such risk management transactions. Dealers such as UBS Warburg lay off the risk they do not wish to assume by transacting with other dealers and potentially other end users.

It turns out that the forward price we received, $54, was an inappropriate price given current market conditions. In fact, it was just an arbitrary price, made up to illustrate the Elementary Principles of Derivative Pricing 19 point. To eliminate the opportunity to e m the $2 profit, the forward price should be $52equal, not coincidentally, to the amount owed on the loan. It is also no coincidence that $52 is the price of the asset increased by the rate of interest. We will discuss this point further in Chapter 2.

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