5
Concepts
5
Formulas
1
Decisions
3
Quiz Questions
5 concepts covered in this module.
OTC agreement to buy/sell asset at predetermined price on future date. Customizable. Counterparty risk. No upfront cost.
Exchange-traded standardized forward. Daily settlement (mark-to-market). Clearinghouse eliminates counterparty risk.
Series of forward contracts. Exchange cash flows based on different rates/prices. Most common: interest rate swap (fixed for floating).
Right, not obligation. Call: right to buy. Put: right to sell. Premium paid upfront. European: exercise at expiry only. American: anytime.
OTC: customized, counterparty risk, less regulation. ETD: standardized, clearinghouse, margin requirements, transparent.
5 essential formulas for this module.
Where: ST = spot price at expiry, F0 = forward price
Where: X = strike price
Where: X = strike price
Where: Premium is the cost of the option
Where: Max loss = premium paid
1 decision frameworks to guide your analysis.
Visual overview of how concepts connect in this module.
This module has 11 flashcards and 3 quiz questions to test your knowledge.
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