FINA0301/FINA2322 FINAL EXAM

FORMULA SHEET

Forward price:

No dividends F0,T = S0 erT

Pn r(T ti ) D
Discrete dividends F0,T = S0 erT i=1 e ti

Continuous dividends F0,T = S0 e(r)T

Currency forward F0,T = x0 e(rry )T

Zero-coupon bond price:

1
P (0, t) =
[1 + r(0, t)]t

Implied forward rate (non-annualized):

P (0, t)
r0 (t, t + s) = 1
P (0, t + s)

Coupon Bond Price:

n
X
Bt (t, T, c, n) = cPt (t, ti ) + Pt (t, T )
i=1

Coupon Rate of Par Coupon:

1 Pt (t, T )
c = Pn
i=1 Pt (t, ti )

Swap Formula:
Pn
P (0, ti )f0 (ti )
R = i=1
Pn
i=1 P (0, ti )

Put-Call parity:

C(K, T ) P (K, T ) = P V0,T (F0,T K)

1
 Generalized Option Parity:

P P
C(St , Qt , T t) P (St , Qt , T t) = Ft,T (S) Ft,T (Q)

Different Strike Price:

K1 < K2 < K3

C(K1 ) C(K2 ) K2 K1 ; P (K2 ) P (K1 ) K2 K1

C(K1 ) C(K2 ) C(K2 ) C(K3 ) P (K2 ) P (K1 ) P (K3 ) P (K2 )

;
K2 K1 K3 K2 K2 K1 K3 K2

Binomial Solutions:
Cu Cd uCd dCu
= eh ; B = erh
S(u d) ud
e(r)h d u e(r)h

C = erh Cu + Cd
ud ud

Risk-Neutral Probability:
e(r)h d
p =
ud

Forward Tree:

u = e(r)h+ h
; d = e(r)h h

The Black-Scholes Formulas:

C(S, K, , r, T, ) = SeT N (d1 ) KerT N (d2 )

P (S, K, , r, T, ) = KerT N (d2 ) SeT N (d1 )

call = eT N (d1 ) and put = call eT

where
ln(S/K) + (r + 21 2 )T
d1 = and d2 = d1 T
T

2
Scratch paper

3
Scratch paper

4
Scratch paper

5
Scratch paper