-Unit Trust: basic financial economics in a nutshell

-Any chart that the professor has put up; be able to explain. The axis. What each item means, ex)) why the unit trust curve curved, not straight

-Law of one price

-Financial economics is arbitrage. Covered interest parity

-Don’t forget the simple stuff

-Calculating the return

-Cumulative Return distribution; Fat tail distribution; how badly things can move on a daily basis; Gaussian distribution could understate the real risk of the return structure. What is the fat tail? Why is it important to understand fat tail? Which ones are riskier? Why?

-Covered interest Parity and Keynes. Know your economists. What did they say?

-Understand the covered interest parity

-Look at the equation and plug in the numbers given, find out what the not-given variable is

-Know how to set up making money

-Setting up the arbitrage

-What do you do if you see the following structure? Violation of covered interest parity; arbitrage opportunity, locking in the return, guaranteed money

-Rule of thumb

-f/d version

-Synthetic Call

-Put-Call Parity

-What to do with option prices

-Covered call ; looks like risky debt

-Long the asset, Short the call

-How is it different from short put? : Premium on the put is much, much less; the whole graph is pushed downward; losses occur more ; important difference

-Unit trust comes up over and over again

-Put-Call Parity

-Core financial economics

-Make sure you know it for the exam

-Go back to the Problem set and work through it. Muscle memory -Understand how to make money out of the Put-Call Parity

-How you would construct a portfolio

-Go over the example sets

-Know your greeks

-What does the slop mean? Identify how you would point out gamma and delta -Slopes, Changes in slopes; how calculus comes in

-CME SPAN

-margin calculation

-Look again in your problem sets

-VaR; value at risk

-Just know all the things on the slide...

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