3. Candidates will know definitions of key terms of modern financial analysis at an introductory and intuitive level, and be able to complete basic calculations involving such terms: yield curves, spot rates, forward rates, duration, convexity, and immunization.

　　Specifically, candidates are expected to demonstrate the ability to:

　　a. Choose the term, given a definition
　　b. Write the definition, given a term
　　c. Perform calculations such as:
　　i. measuring interest rate risk using duration and convexity
　　ii. basic immunization calculations

　　4. Candidates will know definitions of key terms of financial economics at an introductory level: derivatives, forwards, futures, short and long positions, call and put options, spreads, collars, hedging, arbitrage, and swaps.  

　　Specifically, candidates are expected to demonstrate the ability to:

　　a. Explain why firms might care about risk management.
　　b. Evaluate the risk/return characteristics of the basic building blocks of financial derivatives: forward contracts; call and put options.
　　c. Identify associated hedging and investment strategies.
　　d. Explain the use of derivatives as risk management tools.
　　e. Explain the cash-flow characteristics of forwards, futures and swaps.
　　f. Use the concept of no-arbitrage to determine the theoretical value of forwards, futures and swaps.
　　g. Manage financial risk through use of forwards, futures and swaps.

　　Note that probability-based calculations for applications of financial mathematics are in Exam M.

　　Texts

　　Option A

　　• Mathematics of Investment and Credit (Third Edition), 2004, by Broverman, S.A., Chapter 1 (1.1-1.6); Chapter 2 (2.1-2.4 excluding 2.4.2 and 2.4.3); Chapter 3 (3.1-3.3 excluding pages 188–189), Chapter 4 (4.1- 4.3.1), Chapter 5 (5.1-5.3 excluding 5.1.3, 5.1.4 and 5.3.2), Chapter 6 (6.1-6.3 excluding 6.2), Chapter 7 (7.1- 7.2), Chapter 8 (8.2.1, 8.2.4, 8.3.1–8.3.3).

　　• Derivatives Markets (Second Edition), 2006 by McDonald, R. Chapter 1 (1.1-1.4); Chapter 2 (2.1-2.6); Chapter 3 (3.1-3.5), Chapter 4 (4.1-4.4), Chapter 5 (5.1-5.4), Chapter 8 (8.1-8.2), Appendices 2A and 5B.

[1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11]