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#41
06-09-2012, 02:02 PM
 chriwils Join Date: Jul 2011 Posts: 7
informal thoughts on put-call parity

Quote:
 Originally Posted by psugirl2011 is anyone having problems with derivative markets? i cant seem to understand this information. any suggestions? i know what a call and put is but now the book is talking about combinations of a put call parity or something and it is going right over my head i feel really scared seeing that this info will be in MFE.

Put-call parity is an equation that allows you to show that certain combinations of puts/calls/forwards result in the same payoff. I think of put-call parity like this:

You either own (1) a stock (long forward) and (2) the right to sell it at a certain strike price,

-or-

you have (3) the right to buy it at the same strike price and you also have (4) PV of cash that will accumulate to the strike price.

It turns out that both positions produce the same payoff. *Note: (1) is worth the PV of the forward price of the stock at time 0.

(Abbreviated easy-to-remember way: Have stock & right to sell it, or have cash and right to buy.)

These two positions have the same payoff. So

Stock + put = call + cash.

(You can read this as "long (forward) stock and put = long call and PV(strike in cash).")

You can rearrange this as needed, e.g.

Stock - call = cash - put

(Left side = long stock and short call = written covered call). Terms with minus signs can be thought of as short positions.

I hope this helps!

Last edited by chriwils; 06-09-2012 at 02:25 PM..
#42
06-11-2012, 02:49 PM
 Primus257 Member SOA Join Date: Mar 2012 Studying for Exam MLC Posts: 71
Advice for learning calls and puts

Quote:
 Originally Posted by psugirl2011 is anyone having problems with derivative markets? i cant seem to understand this information. any suggestions? i know what a call and put is but now the book is talking about combinations of a put call parity or something and it is going right over my head i feel really scared seeing that this info will be in MFE.
I started out the same way, psugirl. My advice is to memorize the graph shapes of the long/short calls and long/short puts.

First of all, the mental image that you'll burn into your mind will give you a clear sense of what each does, why it's beneficial, and when to use it.

The other reason is that it will become much easier to remember the combination graphs when you hit section 16c (in the ASM 11th edition manual), which is, indeed, a scary place (I just finished working through it today).

Don't be afraid to take the extra time to draw these out - it will be worth it in the end!
#43
06-11-2012, 02:54 PM
 Primus257 Member SOA Join Date: Mar 2012 Studying for Exam MLC Posts: 71

Quote:
 Originally Posted by LC1 Hi, I'm just starting studying with the ASM 11th edition. I was curious for those of you using ASM, about how many days/hours is it taking you to go through each section?
Personally, I'm doing every single problem within the chapters as they happen. That means general annuities took me the longest.

However, I'm in chapter 17 (of 19) now, and I received the manual in early May.

After finishing part I (but before heading into derivatives), I sat down with the SOA practice questions and was able to destroy almost all of them in about 2 hours (which is a LOT quicker and with much more accuracy than when I looked at them before starting with the manual).

Once I finish up derivatives, I'll probably look at the SOA derivatives problems and then return to take the 6 practice exams in the ASM book.

As long as you don't stop/slow down too much, you'll probably be able to finish the entire thing in a month-and-a-half to two months.
#44
06-12-2012, 12:51 PM
 DataDan Member SOA Join Date: Feb 2012 Location: East Coast US Posts: 1,427

just ordered the Actex to get me through the financial ders secions.

If you want to practice problems non-financial der related, here is a good site--

http://www.saab.org/act123.html (must use firefox for some reason)

I just finished all the old material and have been working through problems as I wait for the actex to arrive.

How is everyone's confidence doing? only 2 months to go.
#45
06-20-2012, 07:21 PM
 fsunoles Member SOA Join Date: May 2012 College: Florida State University Posts: 157

How's everyone doing studying? I am finishing up with Chapter 6 this week, so I'm about halfway through the actual material. Been sticking to my schedule, should finish with three weeks of just practice problems.
#46
06-20-2012, 08:02 PM
 raindancer CAS SOA Join Date: Jun 2012 College: Seniorsquid Posts: 11

Just registered, and started studying today too.
#47
06-22-2012, 09:35 PM
 raindancer CAS SOA Join Date: Jun 2012 College: Seniorsquid Posts: 11

Finished up Chp1 yesterday. Tried to do 100 problems today, freaking head is spinning lol
#48
06-24-2012, 03:47 PM
 chrisjkeeney Member CAS SOA Join Date: May 2012 Location: Kings Landing Studying for FM College: Westeros Uni Favorite beer: Smithwick's Posts: 46

I just signed up for the August 15th sitting. I have been studying using the ASM manual and am just finishing up the interest theory section. I plan to finish the derivative market section by the last week of July and then do practice exams and the SOA sample problems.

Best of luck to everyone!
#49
06-26-2012, 01:01 PM
 NoSpoon Member SOA Join Date: Jun 2012 Location: Coruscant Studying for MLC College: Senior, UMASS Amherst Favorite beer: BBC Steel Rail Posts: 36

Quote:
 Originally Posted by DataDan just ordered the Actex to get me through the financial ders secions. If you want to practice problems non-financial der related, here is a good site-- http://www.saab.org/act123.html (must use firefox for some reason)
Just a heads up, this site is simply displaying the practice questions that are also available from the FM syllabus.

Good luck!
#50
06-26-2012, 10:37 PM
 Kaner3339 Member SOA Join Date: Jun 2011 Location: Canada Studying for MLC & MFE Posts: 1,087

LET'S DO THIS! WHO'S WITH ME?!?!

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