Now you can review your exam material anywhere, including using your iphone!
These flashcards have 260 pages covering every topic in the syllabus of the exam. It is written in a way that helps you to remember the materials by listing the steps to solve for some particular questions and by generalizing formulas covered in the exam.
As such, not only you are able to remember the material accurately, you are also able to apply the concepts to the exam questions more effectively.

Attribution Non-Commercial (BY-NC)

402 views

Now you can review your exam material anywhere, including using your iphone!
These flashcards have 260 pages covering every topic in the syllabus of the exam. It is written in a way that helps you to remember the materials by listing the steps to solve for some particular questions and by generalizing formulas covered in the exam.
As such, not only you are able to remember the material accurately, you are also able to apply the concepts to the exam questions more effectively.

Attribution Non-Commercial (BY-NC)

- FM Guo
- SOA Exam MFE Flash Cards
- A&J Questions Bank for SOA Exam MFE/ CAS Exam 3F
- SOA Exam MFE Flash Cards for Upload
- MFE Formulas
- MFE Formula
- MFE Notes - 4.26
- 2014 Mahler Sample m Fe
- A&J Study Manual for SOA Exam P/CAS Exam 1
- H. Mahler Study Aids for SOA Exam C and CAS Exam 4， 2013 Nodrm
- FINAN MFE / EXAM 3F
- MFE Study Guide
- A&J Flashcards for SOA Exam P/CAS Exam 1
- Formulas for the MFE Exam
- MFE_SampleQS1-76
- MFE-notes
- A&J Flashcards for exam SOA Exam FM/ CAS Exam 2
- A&J Questions Bank (Derivatives Markets) for SOA Exam FM/ CAS Exam 2
- MFE
- Broverman MLC 2008 Volume 2

You are on page 1of 31

Exam MFE/3F

Spring 2010

Alvin Soh

Outline

DM chapter 9 Parity and Other Option Relationship

A&J © 2010

DM Chapter 9- Parity and Other Option Relationship

A&J © 2010

DM Chapter 9- Parity and Other Option Relationship

C K , T P K , T e rT F0,T K or

C K , T P K , T S0e T Ke rT or

A&J © 2010

DM Chapter 9- Parity and Other Option Relationship

A&J © 2010

DM Chapter 9- Parity and Other Option Relationship

C K PV Div S P C PV K S or

P S PV K C P S PV Div K

A&J © 2010

DM Chapter 9- Parity and Other Option Relationship

Create synthetic stock by applying put-call parity when the stock pays

discrete dividends.

A&J © 2010

DM Chapter 9- Parity and Other Option Relationship

2. Selling a $K-strike put option;

3. Lend PV0,T Div Ke at risk-free rate.

rT

A&J © 2010

DM Chapter 9- Parity and Other Option Relationship

Create synthetic stock by applying put-call parity when the stock pays

continuous dividend.

A&J © 2010

DM Chapter 9- Parity and Other Option Relationship

S0 e T C K , T P K , T Ke rT

2. Selling e T unit of $K-strike put option;

r T

3. Lend Ke at risk-free rate.

A&J © 2010

DM Chapter 9- Parity and Other Option Relationship

Given that K1 K 2 K3 ,

C K1 C K 2 C K 2 C K3

1.

K 2 K1 K3 K 2

P K1 P K 2 P K 2 P K3

2.

K 2 K1 K3 K 2

1. Sell n units of C K 2 or P K 2 ;

K3 K 2

2. Buy n units of C K1 or P K1 ;

K3 K1

K K1

3. Buy 2 n units of C K3 or P K3

K3 K1 .

A&J © 2010

DM Chapter 10 & 11- Binomial Option Pricing

binomial pricing model

A&J © 2010

DM Chapter 10 & 11- Binomial Option Pricing

uC dCu

B e rh d

u d

A&J © 2010

DM Chapter 10 & 11- Binomial Option Pricing

The risk-neutral probability that the underlying stock price will move to Su

on the date of expiry of the option

A&J © 2010

DM Chapter 10 & 11- Binomial Option Pricing

e

r h

d

p

*

ud

A&J © 2010

DM Chapter 10 & 11- Binomial Option Pricing

binomial pricing model, u ;

2. One plus the rate of capital loss on the stock if it goes down in

binomial pricing model, d .

A&J © 2010

DM Chapter 10 & 11- Binomial Option Pricing

u e

r h h

1.

2. d e r h h

A&J © 2010

DM Chapter 10 & 11- Binomial Option Pricing

1. An American call;

2. An American put.

A&J © 2010

DM Chapter 10 & 11- Binomial Option Pricing

A&J © 2010

DM Chapter 12- The Black Scholes Formula

A&J © 2010

DM Chapter 12- The Black Scholes Formula

distributed and independent over time;

2. The volatility of continuously compounded return is known and

constant;

3. The future dividends are known, either as a dollar amount or as a

fixed dividend yield;

4. The risk-free rate is known and constant;

5. There are no transaction costs or taxes;

6. It is possible to short-sell costlessly and borrow at the risk-free rate.

A&J © 2010

DM Chapter 12- The Black Scholes Formula

given that the stock pays dividend as a fixed dividend yield

A&J © 2010

DM Chapter 12- The Black Scholes Formula

C Se T N d1 Ke rT N d2

where

Se T 1

ln rT 2

1. d1

Ke 2

T

2. d2 d1 T

A&J © 2010

DM Chapter 14 & 22- Exotic Options

A&J © 2010

DM Chapter 14 & 22- Exotic Options

2. Put option with strike price K1 and trigger price K 2 .

A&J © 2010

DM Chapter 14 & 22- Exotic Options

2. Put K1e rT N d2 Se T N d1

where

r 0.5 2 T

S

ln

K2

1. d1

T

2. d2 d1 T

A&J © 2010

DM Chapter 19- Monte Carlo Valuation

1 2

h hZ n

Snh S n1h e 2

or

1 2 1 n

T h

2 n

Z i

ST S0e i 1

A&J © 2010

DM Chapter 19- Monte Carlo Valuation

1. Call option;

2. Put option.

A&J © 2010

DM Chapter 19- Monte Carlo Valuation

1 N r 12 2 h hZ i

1. C e rT

max S0e

K , 0

N i 1

1 N 1 2

r h hZ i

2. Pe rT

max K S0e 2

, 0

N i 1

A&J © 2010

DM Chapter 20 & 21- Brownian Motion, Itô’s Lemma

A&J © 2010

DM Chapter 20 & 21- Brownian Motion, Itô’s Lemma

1. Z 0 0 ;

2. Z t s Z t N 0, s ;

3. Z t s1 Z t is independent of Z t Z t s2 ;

4. Z t is continuous;

5. A martingale: E Z t s | Z t Z t .

A&J © 2010

- FM GuoUploaded byLoh Hui Yin
- SOA Exam MFE Flash CardsUploaded bySong Liu
- A&J Questions Bank for SOA Exam MFE/ CAS Exam 3FUploaded byanjstudymanual
- SOA Exam MFE Flash Cards for UploadUploaded byRui Yu
- MFE FormulasUploaded byahpohy
- MFE FormulaUploaded byjes_kur
- MFE Notes - 4.26Uploaded byAlistair Rook
- 2014 Mahler Sample m FeUploaded bynight_98036
- A&J Study Manual for SOA Exam P/CAS Exam 1Uploaded byanjstudymanual
- H. Mahler Study Aids for SOA Exam C and CAS Exam 4， 2013 NodrmUploaded byBob Liu
- FINAN MFE / EXAM 3FUploaded byDE Pear P
- MFE Study GuideUploaded byahpohy
- A&J Flashcards for SOA Exam P/CAS Exam 1Uploaded byanjstudymanual
- Formulas for the MFE ExamUploaded byrortian
- MFE_SampleQS1-76Uploaded byJihyeon Kim
- MFE-notesUploaded byahpohy
- A&J Flashcards for exam SOA Exam FM/ CAS Exam 2Uploaded byanjstudymanual
- A&J Questions Bank (Derivatives Markets) for SOA Exam FM/ CAS Exam 2Uploaded byanjstudymanual
- MFEUploaded byJi Li
- Broverman MLC 2008 Volume 2Uploaded byEverett Moseley
- A&J Study Manual for SOA Exam FM/ CAS Exam 2Uploaded byanjstudymanual
- MFE manualUploaded byashtan
- Slide Notes 2 UpUploaded byPuvaneswari Paranjodi
- ACTEX Exam C Spring 2009 Vol 1Uploaded byDavid Thompson
- SOA Exam MLC - Formulas (5)Uploaded byCarrie Jimenez
- MFE_PracticeExam_Excerpt_05-20-10Uploaded byrombar
- MFE Study GuideUploaded byhwjin2
- YGM Manual MLCUploaded bySaint-cyr Shibura
- ARCH MLCUploaded byStéphanie Gagnon
- Edu 2009 Spring Exam Mfe QaUploaded byYan David Wang

- FMSM Errata 3rdUploaded byanjstudymanual
- MFEQB Errata 3rd EditionUploaded byanjstudymanual
- A&J Flashcards for SOA Exam P/CAS Exam 1Uploaded byanjstudymanual
- A&J Study Manual for SOA Exam P/CAS Exam 1Uploaded byanjstudymanual
- A&J Flashcards for exam SOA Exam FM/ CAS Exam 2Uploaded byanjstudymanual
- FMSM Errata 2ndUploaded byanjstudymanual
- QB Errata 2ndUploaded byanjstudymanual
- A&J Questions Bank (Derivatives Markets) for SOA Exam FM/ CAS Exam 2Uploaded byanjstudymanual
- A&J Study Manual for SOA Exam FM/ CAS Exam 2Uploaded byanjstudymanual

- bodie4_PPT18Uploaded byAnthony
- MAL732 Practice Sheet 3Uploaded byankurtomar1234
- FI6051 Dynamic Delta Gamma Hedging Example HullTable14!2!3Uploaded byfmurphy
- Corporate PlanningUploaded byamyp2011
- Dilutive Securities and Earnings per ShareUploaded byRukia Kuchiki
- Ch 21 Spot Futures Parity (1)Uploaded byfatenyousmera
- Homework Problems-Options (Fin. 338)-Updated (With Answers)Uploaded byDuc Thai
- Fit.chap012Uploaded bydjkfhadskjfhksd
- COL EIP Quick Start GuideUploaded bysyveainde
- Black ScholesUploaded byKapil Agrawal
- Black Scholes in IndiaUploaded bySatyanarayana Murthy
- Options, Futures, and Other Derivatives, 10th Edition, Copyright © John C. Hull 2017Uploaded byArindam Paul
- Understanding N(d1) and N(d2)Uploaded bychinsoon12
- Ds Diagonal Income GneUploaded byFernando Colomer
- Bull SpreadUploaded byMALLIKARJUN
- Option Pricing Using Binomial TreesUploaded byDhaka Sylhet
- Volatility GRIDUploaded byibkhan80
- DerivaLab2(S15)Uploaded bysubash1111@gmail.com
- PS_6Uploaded bywasp1028
- 7 Mistakes to Avoid When Trading OptionsUploaded byJerry Whitton
- AlgoTradingAndOptions99 NYU0521Uploaded bySrinu Bonu
- DRM-8 Exotic OptionsUploaded byqazxsw
- Options TradingUploaded byKamlesh Pandya
- Option ValuationUploaded bymurthy1234567
- Chapter 20Uploaded bynegalamadn
- ESOPVal v2Uploaded byMenteMaster
- TycoonU Options Made SimpleUploaded bygritchard3
- CES Tax Guide - Tax Filing Basics for Stock Plan TransactionsUploaded byatulw
- Chapter 24Uploaded bySurya Teja
- Option VolatilityUploaded bycoolestguru