Actuarial Outpost Anything on Futures contracts on MFE?
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 Investment / Financial Markets Old Exam MFE Forum

#1
02-25-2017, 02:10 PM
 ilikesoldat Member CAS Join Date: May 2013 Posts: 43
Anything on Futures contracts on MFE?

Hi, this seems like an annoying topic (specifically American call options with binomial trees). Currently I'm covering black-scholes and there's a formula for futures with black scholes. I was just wondering if futures actually have been showing up on recent MFE exams? I want to really focus on what matters most and what has a high probability of showing up on the exam, and I don't see anything about futures on the syllabus for March 2017..

Is there a good chance it will show up, and if so how many questions do you suspect?

Thank you!
#2
02-25-2017, 03:37 PM
 mattcarp Member CAS Join Date: Sep 2016 Studying for Exam 6 College: UC Berkeley Posts: 381

I can only speak to what I've seen on adapt exams. I've seen plenty of binomial tree problems for pricing futures options. For these just remember that the 'dividend rate' is actually the risk-free interest rate, so this simplifies the formulas for u/d and the risk-neutral probability. Other than that everything is the same as normal binomial trees.

I've also gotten a fair number of tricky BS problems on pricing futures options. Actually once you get the hang of these they aren't that bad. If you are working with an at-the-money futures option you can simplify the BS formula a lot because Fe^(-rT)=Ke^(-rT) and also d_2=-d_1, so N(d_2)=1-N(d_1). Then just manipulate to get whatever they are asking. I would definitely be prepared to do these two types of problems on the exam.
#3
02-25-2017, 06:10 PM
 ilikesoldat Member CAS Join Date: May 2013 Posts: 43

Got it, thanks for the help!