STFM Midterm Notes
STFM Midterm Notes
STFM Midterm Notes
Derivatives
Derivatives - A type of financial contract whose value is dependent on
an underlying asset, group of work, or benchmark.
Types of Options
Call Option - An option to buy, or “call,” a share of stock at a certain
price within a specified period.
The steps used to estimate the current value of the call option are
shown:
1. Assets
2. Expiration Date
3. Quantity
4. Price
Types of Futures
Commodity futures - for commodities like oil or grains or wheat
Currency futures- for currencies like dollar or peso
Metal futures - for elements like gold or silver
Treasury futures - for bonds and other financial instruments
Swap
Two parties agree to exchange obligations to make specified
payment streams.
Swaps can involve side payment
Currency swaps are similar to interest rate swaps
Inverse Floater
A note in which the interest rate paid moves counter to market
rates.
Floating-rate note has an interest rate that rises and falls with some
interest rate index.
Structured Notes
A debt obligation derived from another debt obligation.
Another important type of structured note is backed by the interest
and principal payments on mortgages.
A variety of structured notes can be created, ranging from notes
whose cash flows can be predicted with virtual certainty to other
notes whose payment streams are highly uncertain.