Level II Derivatives

Access to all Level II derivatives articles until the next Level II exam date

Strangle

Posted by Bill Campbell III, CFA on April 17, 2016
Posted in: Level II Derivatives, Level III Derivatives.

If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

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CFA® Level II Derivatives Membership, CFA® Level II Membership, CFA® Level III Membership, CFA® Level III Derivatives Membership

This will give you access to this and all other articles at that membership level.

Straddle

Posted by Bill Campbell III, CFA on April 12, 2016
Posted in: Level II Derivatives, Level III Derivatives.

If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Derivatives Membership, CFA® Level II Membership, CFA® Level III Membership, CFA® Level III Derivatives Membership

This will give you access to this and all other articles at that membership level.

(Equity) Collar

Posted by Bill Campbell III, CFA on April 12, 2016
Posted in: Level II Derivatives, Level III Derivatives.

If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Derivatives Membership, CFA® Level II Membership, CFA® Level III Membership, CFA® Level III Derivatives Membership

This will give you access to this and all other articles at that membership level.

Butterfly Spread

Posted by Bill Campbell III, CFA on April 8, 2016
Posted in: Level II Derivatives, Level III Derivatives.

If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Derivatives Membership, CFA® Level II Membership, CFA® Level III Membership, CFA® Level III Derivatives Membership

This will give you access to this and all other articles at that membership level.

Bull Spread

Posted by Bill Campbell III, CFA on April 7, 2016
Posted in: Level II Derivatives, Level III Derivatives.

If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Derivatives Membership, CFA® Level II Membership, CFA® Level III Membership, CFA® Level III Derivatives Membership

This will give you access to this and all other articles at that membership level.

Interest Rate Caps and Floors

Posted by Bill Campbell III, CFA on March 24, 2016
Posted in: Level II Derivatives.

Interest rate caps and floors are, essentially, collections of interest rate options: each option has a positive payoff when it expires in the money and a zero payoff when it expires out of the money.  The individual options are called, respectively, caplets and floorlets. Note that caps and floors are commonly based on LIBOR or […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Derivatives Membership, CFA® Level II Membership

This will give you access to this and all other articles at that membership level.

Binomial Pricing Trees (for Options)

Posted by Bill Campbell III, CFA on March 15, 2016
Posted in: Level I Derivatives, Level II Derivatives.

Binomial trees are used in a variety of contexts in finance: Calculating probabilities for Bayes’ Formula type problems Calculating the value of options on stocks, commodities, and so on (you are here) Calculating the option-adjusted spread (OAS) for bonds Calculating the value of bonds with embedded options Calculating the value of floating-rate bonds Calculating the […]

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Valuing Equity Swaps

Posted by Bill Campbell III, CFA on July 2, 2014
Posted in: Level II Derivatives.

Equity swaps are just as easy to value as plain vanilla interest rate swaps; once again, as with all derivatives, the formula for the value is: \[Value\ =\ PV(what\ you\ will\ receive)\ –\ PV(what\ you\ will\ pay)\] If one leg is a fixed or floating rate, it is valued exactly as described for plain vanilla […]

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CFA® Level II Derivatives Membership, CFA® Level II Membership

This will give you access to this and all other articles at that membership level.

Pricing Equity Swaps

Posted by Bill Campbell III, CFA on July 1, 2014
Posted in: Level II Derivatives.

Remember that the price of a swap is the fixed rate on the swap.  An equity swap can take many forms: The equity side can pay the return on a single stock, on a portfolio of stocks, or on an equity index. The equity side can pay only the price appreciation on the stock, portfolio, […]

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CFA® Level II Derivatives Membership, CFA® Level II Membership

This will give you access to this and all other articles at that membership level.

Valuing Currency Swaps

Posted by Bill Campbell III, CFA on June 30, 2014
Posted in: Level II Derivatives.

Currency swaps are only slightly more difficult to value than plain vanilla interest rate swaps; once again, as with all derivatives, the formula for the value is: \[Value\ =\ PV(what\ you\ will\ receive)\ –\ PV(what\ you\ will\ pay)\] Because the swap is equivalent to two bonds (one long, one short, one in one currency, one […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level II Derivatives Membership, CFA® Level II Membership

This will give you access to this and all other articles at that membership level.