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Comprehensive Guide to Financial Mathematics Exam Preparation

Hand-out with exam answers for MATH 2510 - Fin. Math 2 including swap contracts, swap valuation, exam advice, and question strategies. Colorful cheat sheets provided for effective study. Helpful tips to succeed in the test and tackle complex swaps.

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Comprehensive Guide to Financial Mathematics Exam Preparation

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  1. Hand-out Test Exam #1 w/ answers. Hand-written is what you get – for several reasons. Test Exam #2 (pink.) How do we play this? Cheat Sheet (yellow.) But for God’s sake don’t take the name literally. No course plan or slides. MATH 2510: Fin. Math. 2

  2. Today: Swaps & Test Exam #1 Hull’s Chapter 7 on swaps in just two slides. There won’t be exam questions on swaps. Remaining parts of Test Exam #1 • Question E. (When you’re are asked to “comment on” something, that something is usually wrong.) • Question D. One formula you must learn by heart. You can get a lot of mileage out of it. MATH 2510: Fin. Math. 2

  3. Hull’s Chapter 7: Swap contracts An agreement to exchange (”swap”) one series of payments for another – from simple to very complex. A forward is – by that definition – a swap. The ”plain vanilla” interest rate swap tranforms fixed interest payments into variable interest payments. (”Fixed for floating.”) Common. Swaps are frequently used across exchange rates. MATH 2510: Fin. Math. 2

  4. W’s of Swaps What, I? Previous slide. How? A plain vanilla interest rate swap can be valued without a dynamic model. Surprising. Why? A comparative advantage argument. And its perils. What, II? Complex swaps. (Procter & Gamble swap, credit default swaps, …) MATH 2510: Fin. Math. 2

  5. Exam Advice • Be brief, be quick. • It’s not a beauty contest – I can read my own hand-writing, I can sure as h*¤# read yours. • Questions are independent, so if you get stuck, go on. • Partial credit is given (a lot.) Give it the old college try. MATH 2510: Fin. Math. 2

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