Sign up  |  Log in

SWAPS, FRA, PUT CALL PARITY

Please can explain replication of SWAPs, FRA, Put call parity and put call parity forward?

I have spent lots of time reading these concepts with zero understanding.

I need someone to break it down for me to its simplest term

You’re ready to take on the CFA® Program, so stop guessing where you should begin. You give us your study dates, we’ll give you the study plan. Our adaptive activity feed breaks down your 300 hours into bite-sized weekly tasks that fit into your life.

Swaps = exchanging cash flows

FRA (forward rate agreement), a type of SWAP, that is a single period, exchanging fixed rates for floating rates 

Put-Call Parity 

Protective put = Put + underlying asset 

fiduciary call = Call + bond 

fiduciary call = protective put 

Put-call forward parity

same thing as above, except forwarding contract instead of an underlying asset 

if positive = long

if negative = short 

if isolating for call = synthetic call 

if isolating for put = synthetic put 

These only hold when there are no arbitrage opportunities 

Droplets wrote:

Swaps = exchanging cash flows

FRA (forward rate agreement), a type of SWAP, that is a single period, exchanging fixed rates for floating rates 

FRA is not a type of swap, but an interest rate swap and a FRA are equivalent. A FRA is settled in advance while a swap is settled in arrears.

If you're the first out the door, that's not called panicking