This is like the 5th time I’ve reviewed it - after every time, I feel pretty good, then completely forget it. I have a grasp of Forwards and Futures, but the rest is a complete $hit-show. This material makes me feel like I have early stage Altzheimers! Any one else!?

Me! Forwards and futures and options, cool. Swaps, awful. I reviewed the stuff posted here too, it makes sense, I just need practice I think to get the mechanics smooth, understand the concepts, cant value one after initiation to save my life.

tvPM Wrote: ------------------------------------------------------- > Me! > Forwards and futures and options, cool. > Swaps, awful. I reviewed the stuff posted here > too, it makes sense, I just need practice I think > to get the mechanics smooth, understand the > concepts, cant value one after initiation to save > my life. What stuff posted here? Can yous end me? I need help on this section…what a gawd-awful showing on Qbank…hah Email - wangtawang@gmail.com

How do you review derivatives? It takes me forever to get the discount factors and go through all the work for each one.

I read five times and I think I finally got swap valuation on my fifth pass.

Bradleyz Wrote: ------------------------------------------------------- > How do you review derivatives? It takes me > forever to get the discount factors and go through > all the work for each one. Just convert the annual rate to a continuous compounding rate ln(1+annual rate). Then press the wonderful e button. You will have your discount factor. Note: This is for when it is an annual discount rate. When you need it for 6 months just do e^(rate you got with ln * 0.5).

Me too… I still dont get it… sigh…

If you try to do all the CFAI book end of chapter questions for Derivatives you’ll nail it. It’s good practice. There’ll be multiple types of the same question. If the first one you couldn’t nail it, read the answer, then try to do the same thing for the second one (with a twist of some kind).

Long story short. The real pain-in-the butt in Derivatives section are FRA and Swap valuation. Make sure you can: - differentiate price from value; - be able to calculate price and value; - know which rates to use (this is the hard part, since it’s almost guarantee that CFAI would be flooding us with rates, rate and more rates on the exam); - if you are calculating the value, make sure you discount it using the right rate (this is another tricky part). Draw time line diagrams, filtering the data, put the data on the diagram one-by-one, do each step slowly. At the last step, pray to your God (if you believe in one) and fill in the correct bubble. For swap valuation, make sure you consider the exchange rate effect from the perspective of whichever party you are evaluating from. e.g. for a -yen fix-float swap, the fix side will borrow yen and pay yen interest (and the float side will borrow and pay $ interest). When evaluating from the perspective on the fix side, remember that you are borrowing a FC, so you need to consider the initial exchange rate, as well as the exchange rate when you pay the FC interest. For float side, always remember the floating rate is reset at the beginning of each period (so you need to look for one lag period for the proper rate). Other tiny bits that are often overlooked: - futures. Despite it’s many similarities to forwards, it’s not the same thing; - the many types of futures and how they are quoted. e.g. T-Bond futures are quoted in 1/32 of a percent. T-Futures are quoted in 100- percent points and it’s always in 90-days basis; - how to convert BSM call option value into put option value (and vice versa); - the four ways to terminate a swaption. Derivatives aren’t easy in L2. So do expect some uphill battle in order to fully grasp the materials.

why does TBill at 97 mean the risk free rate is 3% ?

Bosters, that’s just by convention - how prices are quoted in TBill.

I’ve scheduled all of tomorrow morning to do some derivatives… for the 10th time…

trying to grasp derivs is sucking the time away from other concepts that i need to review. however, i’m determined not to punt on this

I am doing Deriative and Fixed income Wednesday morning, because as everyone claimed, it is easy to forget The key to this topic is discount factor of present value…