CFA Level 2 | Derivatives: Interest Rate Options & Swaptions - Equivalences

[@effexxmusic2814]

Crunching for my level 2 CFA in a month, this video is a blessing.... must be divine intervention.... Awesome.... THANK YOU!!!!!

[@bajaks247]

You have a unique ability to explain CFA material in very simple terms.

[@FabianMoa]

Thanks!

[@nikhilchowdhary8919]

boss what a video, havent come across anyone explain so simply in 10 mins what a clarity

[@FabianMoa]

Thanks for the feedback, Nikhil! Glad it was helpful

[@izwiz]

Fabian, you have a natural ability to cut the noise, and simplify what many cannot, and then teach it in a manner that is easy to follow. You're rare! I've watched every one of your videos. Thank you!

[@FabianMoa]

Thanks for the kind words and feedback! 😎

[@parinijoban]

3 days to go until my L2 exam and you've completely demystified these equivalencies. Thank you so much :)

[@FabianMoa]

All the best!

[@stanleysolagah5492]

I now see how powerful put call parity is ..Fabian is just simply good 💕

[@shradhamakhija2306]

Thank you so much for this..i was really struggling with the equivalencies. Now i understand how much helpful the put call parity is.

[@FabianMoa]

Glad it was helpful!

[@rohanmehta9533]

I have my level 2 in 3 days and this just put me at ease, made it so easy to understand, thank you so much

[@kushalparikh8056]

Explanation was very good. Cleared a difficult part of derivatives for me!

[@s.m.hassan3887]

sir fabian pls upload more content for level 2..its very easy to understand the concept.

[@FabianMoa]

I will try my best, Syed.

[@alexh.4842]

So genius & powerful. coming from L3 coz I wasn't quite clear about swaption. thank you!

[@FabianMoa]

Glad it helped!

[@shouperman1]

This is a life saver, thank you very much!

[@FYC601487]

Thanks for the clear explanation.

[@limchernquan3871]

Very good explanation. Thank you so much

[@SoMadInLove]

Amazing explanation. Many many thanks for this video!

[@apsrinivasan1606]

This is best explanation I've seen of this concept, thank you. Exam is 2 days away! Is there an equivalency for a Long Putable bond?

[@FabianMoa]

Thanks! It's not in the syllabus but you buy a fixed rate bond and Long a Receiver swaption. All the best in your exam 👍

[@apsrinivasan1606]

@@FabianMoa Cool, thanks.

[@nandinigarg236]

Hi, can you please explain why would the values of cap and floor be the same if exercise rate for floor and cap are set equalto market swap fixed rate?

[@ryanchand7897]

Hi Fabian, I'm just comparing your example @ 7:46 to Example 9, Reading 12, CFA L3. In this example to offset a liability that includes a callable bond, we need to hedge the long call option, and it is achieved by shorting the receiver swaption (so shorting a receiver swaption = short call), in your example it states that shorting a receiver swaption is equivalent to a short put. Are you able to clarify please?

[@FabianMoa]

Depends on which underlying you have. A long call option on the BOND is equivalent to a long put option on the INTEREST RATE (i.e. if interest rates rise, bond price falls).

[@ryanchand7897]

@@FabianMoa Thank you!

[@brittanyshapiro5494]

Oh wow this is so helpful, thank you!

[@FabianMoa]

You're welcome, Brittany!

[@gargijain3800]

Thank you so much Prof for this video..I had a doubt..Why are you calling payer swaption similar to a long call option?

[@FabianMoa]

For both of them, the buyer will pay fixed (i.e. exercise rate) and receive floating (i.e. underlying rate)

[@iceflyger8110]

Hi, I think this is wrong but it may be just me. CFAI state that payer swaption is the put swaption (option into a swap where we pay the fixed rate). In the video you state that the payer swaption is the call swaption. Please someone correct me if i'm wrong. Thank you

[@ryanchand7897]

Payer swaption = pay fixed, receive floating. You have a call on interest rates (you benefit when they increase).

[@chidieze5586]

Mr Fabian, but normal callable bonds are long straight bonds combined with a short call options. But here in your video you are shorting a receiver fixed swaption(which is typically a put option). Any reason for this difference?

[@FabianMoa]

A call option on the underlying bond is equivalent to a put option on the interest rate / receiver swaption (on the swap rate)