Analysis of Derivatives for the CFA Program by Don M. Chance

By Don M. Chance

Research of Derivatives for the CFA® software introduces scholars and practitioners to a realistic chance administration method of derivatives. The textbook captures present perform and displays what the overall funding practitioner must find out about derivatives. It doesn't easily carry a proof of varied derivatives tools and positions yet presents motivation for each derivatives place by way of explaining what the chief desires to accomplish sooner than addressing the main points of the location.

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The pos- t I i sibility exists, however, that at least one of the participants might wish to terminate the position prior to expiration. For example, suppose a party goes long, meaning that she agrees to buy the asset at the expiration date at the price agreed on at the start, but she subsequently decides to terminate the contract before expiration. We shall assume that the contract calls for delivery rather than cash settlement at expiration. To see the details of the contract termination, suppose it is part of the way through the life of the contract, and the long decides that she no longer wishes to buy the asset at expiration.

0%. B. between 0% and 5%. C. 5%. D. more than 5%. 13. If the spot price of gold is $250 per ounce and the risk-free rate of interest is 10 percent per annum, the six-month forward price per ounce of gold, in equilibrium, should be closest to A. 00. B. 25. C. 50. D. 00. 14. Concerning efficient financial (including derivative) markets, the most appropriate description is that A. it is often possible to earn abnormal returns. B. the law of one price holds only in the academic literature. C. arbitrage opportunities rarely exist and are quickly eliminated.

She nets $2. The transaction is over. There is always a possibility that her counterparty on the long contract could default. She is still obligated to deliver the asset on the short contract, for which she will receive $42. But if her counterparty on the long contract defaults, she has to buy the asset in the market and could suffer a significant loss. There is also a possibility that the counterparty on her short contract could fail to pay her the $42. Of course, she would then not deliver the asset but would be exposed to the risk of changes in the asset's price.

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