- CFA Level 2: Derivatives Part 2 – Introduction
- Introduction to Options
- Synthetic Options and Rationale
- One Period Binomial Option Pricing Model
- Call Option Price Formula
- Binomial Interest Rate Options Pricing
- Black-Scholes-Merton (BSM) Option Pricing Model
- Black-Scholes-Merton Model and the Greeks
- Dynamic Delta Hedging & Gamma Related Issues
- Estimating Volatility for Option Pricing
- Put-Call Parity for Options on Forwards
- Introduction to Swaps
- Plain Vanilla Interest Rate Swap
- Equity Swaps
- Currency Swaps
- Swap Pricing vs. Swap Valuing
- Pricing and Valuing a Plain Vanilla Interest Rate Swap
- Pricing and Valuing Currency Swaps
- Pricing and Valuing Equity Swaps
- Swaps as Theoretical Equivalents of Other Derivatives
- Swaptions and their Valuation
- Swap Credit Risk and Swap Spread
- Interest Rate Derivatives - Caps and Floors
- Credit Default Swaps (CDS)
- Credit Derivative Trading Strategies
Swap Pricing vs. Swap Valuing
Pricing: The determination of initial swap terms at the start of the swap's life
Interest Rate Swap Price = interest rate paid by fixed rate payer
Valuing: Calculating the market value of a swap at any point in its life.
A swap's value at initiation is set to zero.
Key Swap Valuation Concepts
Analysts must recognize that a swap's cash flows can be replicated by the cash flows from a portfolio of other financial instruments.
The value of a floating rate instrument is par (1.0) at its start and on all coupon days.
For example a floating rate bond's value will change in the time between issuance and the coupon payment date, but when the bond's next coupon payment is made, the rate will be reset and the bond value will return to par.
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