How do you/did you study for Derivatives? management, practice, material, trouble, caused

burning0spear

The last 3 readings (options/Swaps/Risk management strategies) were quite confusing and caused trouble during the practice questions and EOC.
Considering that Derivatives contains a lot of material for just 5%, how did you deal with this section?

optiix

Learn it the best I could.  Focused on it once I mastered everything else – but what are you confused about?

tarik64

For minimum and maximum values of options, why is European put options discounted at the risk free rate while American put options are not discounted.
This logic doesnt apply to European call/American call options.

farrukhsadiq

I did not read CFA textbook on this topic.
You may read Mcdonald’s “Derivatives Market” if you have one.  This one is good.

meghanjackson

It becomes easier after you have valued a swap for the first hundred times.

Kiakaha

using the book

JRossSter

study2gether wrote:
For minimum and maximum values of options, why is European put options discounted at the risk free rate while American put options are not discounted.
This logic doesnt apply to European call/American call options.
This is all rusty, but isn’t it because you can’t exercise European bonds until maturity?

ftwcfa

If you’re really pressed for time, focus on remembering the key formulas so that you’ll be able to knock off at least a couple of the questions on the exam. Obviously this is not ideal, but often your time is better spent on more important topics…

thommo77

study2gether wrote:
For minimum and maximum values of options, why is European put options discounted at the risk free rate while American put options are not discounted.
This logic doesnt apply to European call/American call options.
like someone mentioned above, you have to discount european options because they can only be exercised at the expiry date ie at a future date. the maximum value of an european/american call is the spot/market price (because no one will be willing to pay more for the option than the market price of the underlying) of the underlying and that is already in PV terms (market price is price at time 0) ,therefore no need to discount. the maximum value of a put option is strike price (no one is willing to buy a put for more than the maximum they are hoping to sell the underlying for). however for an european put, you only settle at the expiry date in the future and thus the need to discount the strike price from expiry date to present value terms. for an american put, you can exercise now so the maximum will be the exercise price now, time 0 therefore no need to discount.
hope this makes sense!