Formula sheet for the midterm exam

 Hedging strategies
∗
𝑏 𝑆 𝐹, ℎ∗ 𝜌 , 𝑁∗ , 𝑁∗ , 𝑁∗ 𝛽

𝑁∗ 𝛽 𝛽 if 𝛽 𝛽 𝑁∗ 𝛽 𝛽 if 𝛽 𝛽

 Interest rates
/
𝑅 𝑚 ln 1 , 𝑅 𝑚 𝑒 1 , 𝑅 ,

/
𝑉 𝐿 𝑅 𝑅 𝑇 𝑇 𝑒 , 𝑉 100 𝑒 , 𝑅 ,

𝐿 𝑅 𝑅 𝑇 𝑇
𝐹𝑀 ,
1 𝑅 𝑇 𝑇

 Forward price
cash and carry strategy : i borrow; ii buy; iii short forward.

reverse cash and carry : i short sell; ii loan; iii long forward.

𝐹 𝑆 𝑒 , 𝐹 𝑆 𝐼 𝑒 , 𝐹 𝑆 𝑒 , 𝐹 𝐸𝑆 𝑒

𝑓 𝑆 𝐾𝑒 , 𝑓 𝑆 𝐼 𝐾𝑒 , 𝑓 𝑆 𝑒 𝐾𝑒

 Treasury bond futures

Underlying value of the futures contract = futures prices 1 000

$ received by the short for 100 $ of face value = coted futures prices conv. factor + accrued int.

Cost for the short = coted bond price – coted futures price conv. fact.

 Eurodollar futures
𝑄 100 𝑟futures ,

underlying value of the futures contract 10 000 100 0.25 100 𝑄

 Hedging with duration

𝛥𝐵 𝐵 𝐷 𝛥𝑦, 𝑁∗