Translating Exhibit 13 on pg 392 in CFAI Volume 5 into Mozart

This is my understanding of this “practical” issue:

IMS: I need $20M to buy a weed plant.

Takes out $20M floating note.

IMS: (30 seconds later) O s**t! Wait a second! I think rates are going to raise now. During this 30 seconds I had time to properly analyze regression models and do some channel work to formulate an opinion that rates will move up. Wish I did this one minute ago!

Enters a payer swaption.

IMS: (A few weeks later) Sigghhh. I did it again. I was so high that I realized I wasn’t analyzing regression models and doing channel work, I was actually analyzing certain material on while calling 1-800-TIF-FANY. Ok, so now I need to hedge my hedge on my hedge that I originally hedged and then hedge all this hedging. Sound good?

Enters a receiver swaption

The life of a CFA candidate smiley