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The Disreputable Dog 02-19-2017 01:03 PM

JULY 2017 MFE Exam
 
Study manuals are out! Bring on the new syllabus!

The Disreputable Dog 02-19-2017 01:25 PM

In the ASM manual on pg. 3, aren't the dividends on a short stock payable to the lender instead of the person that purchased it from you?

Quote:

Originally Posted by ASM pg. 3
How does short-selling a stock work? Suppose you short-sell stock to Bob. A broker lends you shares of a stock. ... You sell the stock to Bob and receive the price. If the stock pays dividends, you must pay those dividends to Bob. These dividends are taxable to Bob and tax-deductible to you.

Shouldn't you pay the dividends to the lender - not to Bob? He should be receiving them directly from the stock he now has possession of. It's the person who lent the stock who needs to be made whole.

McDonald supports paying to the lender.

Quote:

Originally Posted by McDonald (2nd ed.) pg. 14
Observe in particular that if the share pays dividends, the short-seller must in turn make dividend payments to the share-lender. ... This dividend payment is taxed to the recipient, just like an ordinary dividend payment, and it is tax-deductible to the short-seller.

There's more later that supports this, but it also just seems intuitive.

The Disreputable Dog 02-20-2017 01:46 PM

Isn't this backward?

Quote:

Originally Posted by ASM pg. 10
To create a synthetic long forward, one sells the stock and lends the price of the stock.

Wouldn't you borrow the price of the stock and buy it? Then at some future time you repay a fixed amount and you have the stock.

Honestly, all the long and short terminology is relatively new to me. When we say we're creating a synthetic "long forward", this is the same as buying a genuine forward, right?

ALivelySedative 02-20-2017 02:40 PM

Bob is the lender?? Only way that makes sense. I don't know why this would be explained with a 3-person transaction.



Quote:

Originally Posted by The Disreputable Dog (Post 8884016)
Isn't this backward?


Wouldn't you borrow the price of the stock and buy it? Then at some future time you repay a fixed amount and you have the stock.

Honestly, all the long and short terminology is relatively new to me. When we say we're creating a synthetic "long forward", this is the same as buying a genuine forward, right?

Text is correct on this one. "Buying" a forward literally means making the agreement to purchase the item at a later point in time. You don't actually pay anything at time 0. Thus by selling the stock now and lending, you accumulate the forward price and buy back the stock. Net cash flow at time 0 is $0. You then buy the stock later.

The Disreputable Dog 02-20-2017 03:53 PM

Quote:

Originally Posted by ALivelySedative (Post 8884074)
Bob is the lender?? Only way that makes sense. I don't know why this would be explained with a 3-person transaction.

Bob is the wizard behind the lending curtain. OK though, but we're on the same page that the dividends you pay are to the lender.

Quote:

Originally Posted by ALivelySedative (Post 8884074)
"Buying" a forward literally means making the agreement to purchase the item at a later point in time. You don't actually pay anything at time 0. Thus by selling the stock now and lending, you accumulate the forward price and buy back the stock. Net cash flow at time 0 is $0. You then buy the stock later.

Yes, but aren't the payoffs reversed? If you buy a genuine forward you receive ST - F at time T. If you sell the stock and invest the money you receive F - ST when you get your investment back and have to purchase the stock at the time T spot price.

The Disreputable Dog 02-21-2017 12:17 PM

Quote:

Originally Posted by ASM pg. 10
To create a synthetic long forward, one sells the stock and lends the price of the stock.

Quote:

Originally Posted by ASM pg. 17
Another way to see the answer is to remember that a synthetic long forward buys a stock and sells a bond.

I'm on board with the latter explanation. McDonald goes at the forward pricing formulas with a slightly different intuition. He says, there are two ways to have the stock at time T. You can buy a forward. You can also borrow the money to buy the stock now. When time T rolls around you either pay the forward price or you repay the accumulated value of your loan - and yada yada, one price.

What's cool is that the "intuition" of borrowing the money to buy the stock is literally just creating a synthetic forward. You take a long position in the stock using a short position in bonds.

F = S - B

And then this rearranges for whichever other elements you want to synthesize.

dkamka 02-22-2017 03:17 AM

the quickest way to get through this material here
 
use PCP and just understand the difference between the cash flows and transactions one enters into. No need to try so hard in understanding things this way. The math is much easier as the equation explains it every time and never changes.:sleep:

gaudettj 02-22-2017 12:12 PM

R.I.P stochastic calculus :survivor:

dkamka 02-22-2017 02:15 PM

another survivor, thankfully i passed. Oh wait, there is no try, only DO
 
Quote:

Originally Posted by gaudettj (Post 8885991)
R.I.P stochastic calculus :survivor:

It was very interesting stuff. I never thought i'd be doing stochastic differential equations though. The more complex the math is, the more interesting it is because it's more realistic. It can go even further at the Fellowship exam level because then we won't assume volatility is constant. According to the Actex MFE seminar instructor, Rich Ownens, we may get into non-constant volatility during the fellowship exams, but that only makes sense because volatility is NOT constant :notworth:

ToBeAnActuaryOrNotToBe 02-22-2017 05:22 PM

Results will be released 8 weeks after the exam this time. This makes knowing whether or not to study for the next exam difficult. If you take the MFE this session, do you move on and study for the next exam even without a preliminary pass? I guess it would depend on how confident you felt during the test. Waiting 8 weeks for a result might mean 8 less weeks to restudy the MFE if you have to take the MFE the next testing session.


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