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

By Don M. Chance

Research of Derivatives for the CFA® software introduces scholars and practitioners to a realistic probability administration method of derivatives. The textbook captures present perform and displays what the final funding practitioner must learn about derivatives. It doesn't easily carry a proof of varied derivatives tools and positions yet offers motivation for each derivatives place by means of explaining what the chief desires to accomplish ahead of addressing the main points of the location.

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Because of price changes in the market during the period since the original contract was created, this new contract would likely have a different price at which she would have to commit to sell. She would then be long a contract to buy the asset at expiration at one price and short a contract to sell the asset at expiration at a different price. It should be apparent that she has no further exposure to the price of the asset. For example, suppose she is long to buy at $40 and short to deliver at $42.

Let us look at the two outcomes. Suppose stock AXE goes to $75. We deliver the stock to settle the obligation on the forward contract and receive $54 for it. We use $52 of the $54 to pay back the loan, leaving a gain of $2. Now suppose AXE goes to $40. We deliver the stock, fulfilling the obligation of the forward contract, and receive $54. Again, we use $52 of the $54 to pay back the loan, leaving a gain of $2. In either case we made $2, free and clear. In fact, we can even accommodate the possibility of more than two future prices for AXE.

00 today. 00, and buying one share of B. 00. 50 per share) to return the shares sold short. 50) to return them. 4 shares of A. 4 times the price of A. 4 times the price of A. C H A P T E R - - - LEARNING OUTCOMES After completing this chaptel; you will be able to do the following: W Discuss the differences between the positions held by the long and short parties to a forward contract. W Describe the procedures for settling a forward contract at expiration. W Discuss how a party to a forward contract can terminate a position prior to expiration and how credit risk is affected by the way in which a position is terminated.

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