Derivatives is killing me

I don’t know what else to do…I just seem to be unable to get this stuff into my head! Doing ok on the pricing of swaps and FRAs, but all those questions about forwards and futures are a no-go! I am going to spend this weekend on derivatives, if I don’t get it then, I suspect i never will! I did the first pratice exam on Schweser and did ok, but far from great. 75% on the am and 78% on the pm session. I guess with 6 weeks to go that’s ok. Main problem area (surprise, surprise!) DERIVATIVES and portfolio management.

i don’t get it…you find swaps easy but forwards hard? usually its the other way round. if you can do FRA’s, forwards is fine, once you get forwards, futures is fine. easiest way is to draw it on paper, put negative/positive signs, draw a time line…makes it easier.

yeah forwards arent that bad man - just remember this formula: Forward Price = (SPot Price - Present Value of Cash flows on asset)*(1+rf)^T you must subtract out the cash flows on the underlying asset, because the holder of the futures contract will not receive them, while the holder of the actual asset will. So on a stock/bond forward/future, you must back back out the PV of dividends or coupons, because the holder of the futures contract will not receive them. To derive VALUE (as opposed to price) just think about it in terms of “am i getting a good deal on the future contract i have”. So if i’m Long the future, i look at the spot price (what i SHOULD be paying based on current market conditions) vs what i WILL pay (the rate on the futures contract. SO value to the long is simply Current spot price - Fwd Price/1+rf To the Long, contract has value when the price goes up - because i’m now entitled to purchase the asset at a price thats cheaper than what i should be paying (contract price is less than spot price). If the prices go down, i lose money on the future, because i locked in at a higher price than the spot price.

i’m actually killing derivatives…I guess its because I’m so close to the exam and know i wont have time to review it thoroughly again so im forcing myself to learn it now. needless to say, i have A LOT of review to do in may.

The derivatives section in CFAI is just really badly written, IMO.

i’m using Stalla

I feel you, i understand fras but they make forwards and futures harder than they have to be

i hate OPTIONS. haven’t reached swaps yet so dont knw

I love Derivatives, its really challenging to study. I felt comfortable after using Stalla’s lectures by David. Whether or not we like, if the author of the CFA loves the stuff probably its not a bad idea to develop love towards it. One more motivation to kill this stuff, as it is going to follow us to level 3.