Must I memorize the formulas of structural model and reduced form model

CFA Level II Fixed Income
#1

I dont know if I must memorize the formulas.

Honestly, these formulas are so complicated. If the answer is yes, I think I must learn it by heart. :slight_smile:

#2

The LOS command word is “Explain”, not “Calculate” for both the structural model and the reduced form model.

Hope this helps!

#3

Thank you.

I have another question. In the reading 41-Valuation of contingent claims, the Los 41h says “interpret the components of the black choles merton model…”. We dont need to memorize the formulas for valuing call put option as well?

#4

You do not need to memorize the formula, if it used a word like “calculate” as DannyOcean commented, you’d be expected to know the formula. I’m sure they’re looking for you to be able to understand what each variable is, how it can affect an options price, what the call pricing formula says is like long the stock and financing a portion of the purchase/what the put price formula says is like shorting the stock and lending the proceeds, what the d1 and d2 terms represent, etc. Things like that I imagine, hope that helps!