How Much Time To Waste On Swaps

CFA Level III Derivatives
#1

I can’t for the life of me remember how to calculate interest rate swaps, FRAs, and swaptions. How much time at this point should I spend on this (i.e., how are they weighted and what is their likelihood)?

#2

Swaps are high probability IMO.

IMO it’s easy material : just understand the underlying transaction, i.e. who is paying what to whom, then net out all that can be netted ( e.g. + Libor - Libor).

Much more intuitive than retarded stuff in behavioral finance, just to name one.

#3

Rellison - I felt the same way as you did until today. I sat down and went back through the examples is Schweser and they all made sense all of a sudden. I took the CFAI online practice tests and then did the CFAI EOC questions and blasted through them.

Viceroy is right, you can do it – you just have to tell yourself that you can. It’s not too difficult if you sit and think and then answer, which is what the Institute says takes 60 - 70% of the time in answering a question and 30 - 40% of the time writing the answer.

#4

there really isn’t a whole lot of FR/swapation valuation in level III. Almost entirely about hedging and reducing duration.

#5

Thank you for the encouragement! I keep studying for this exam, and it is like whack-a-mole. Whenever I remember one thing, a few days later I have forgotten it and have to remember it again.

#6

Yeah, that’s the challenge. I feel like a goldfish.

#7

At Level III you’re not going to have to calculate the price (fixed rate) of a swap; that’s Level II stuff.

You have to know how to use swaps for risk management. And that’s really, really important.

Don’t waste your time on it; it’s not a waste of time. Spend time on it, and get those points.

#8

@rellison, you must be female for forgetting things [‘always … never’, you’ll understand if you’ve ever been in relationships]

you could be a dude as you are lazy and try to find a short-cut (or in better term, an efficient way)

Don’t forget the concept for RM as S2000magician mentioned. Read textbook exhibits, it’s clear there. It’s one of the sections that there aren’t confusion as Viceroy said