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Class Notes for Financial Modelling at Western University

Financial Modelling 2557A/B Lecture Notes - Lecture 7: Bear Spread, Bull Spread, Basis Risk
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Firms convert inputs into goods and services  Firm is profitable if proceed of what it produces > cost of its inputs  If price of commodity is unstable, firm's profitability will be affected o ...

Financial Modelling
Financial Modelling 2557A/B
Xiaoming Liu
Financial Modelling 2557A/B Lecture Notes - Lecture 10: Notional Amount, Spot Contract, Reference Rate
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Interest rates are annualized in order to make easy comparisons between investment opportunities Zero Coupon/Pure Discount Bond: A bond that makes only a sigle payment at its maturity Yield Curve: A graph of annualized YT...

Financial Modelling
Financial Modelling 2557A/B
Xiaoming Liu
Financial Modelling 2557A/B Lecture Notes - Lecture 6: Downside Risk
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Assumptions of spreads: 1. European options 2. Non dividend-paying stock 3. Same strike price 4. Same time to expiration 5. 0 Transaction costs 6. ...

Financial Modelling
Financial Modelling 2557A/B
Xiaoming Liu
Financial Modelling 2557A/B Lecture Notes - Lecture 4: Call Option, Option Style
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An option gives its owner the right, but not the obligation, to buy or sell the underlying at a predetermined price during a predetermined time period  Owner of call option has right to buy - seller is obligated t...

Financial Modelling
Financial Modelling 2557A/B
Xiaoming Liu
Financial Modelling 2557A/B Lecture Notes - Lecture 8: Arbitrage, Dividend Yield, Compound Interest
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4 different payment and delivery timing combinations: 1. Outright Purchase: Ordinary transaction 2. Forward Contract: Agree on price now, pay/receive later 3. Fully Leveraged Purc...

Financial Modelling
Financial Modelling 2557A/B
Xiaoming Liu
Financial Modelling 2557A/B Lecture Notes - Lecture 2: Credit Risk
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Market Maker: A firm that stands ready to buy and sell a particular security on a regular and continuous basis at a publicly quoted price Ask/Offer Price: The price at which you can buy Bid Price: The price at which you ca...

Financial Modelling
Financial Modelling 2557A/B
Xiaoming Liu
Financial Modelling 2557A/B Lecture Notes - Lecture 3: Arbitrage, Risk Management
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Forward Contract: An agreement/obligation to buy/sell an underlying asset in the future, at a pre- determined price  Party who agrees to buy is in long position; party who agrees to sell is in short position Arbi...

Financial Modelling
Financial Modelling 2557A/B
Xiaoming Liu
Financial Modelling 2557A/B Lecture Notes - Lecture 9: Forward Price, Interest Rate, Risk-Free Interest Rate
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In practice, an arbitrageur has additional costs: 1. Trading fees/commissions 2. Bid-ask spreads 3. Different borrowing/lending rates 4. Possible price changes Assumpt...

Financial Modelling
Financial Modelling 2557A/B
Xiaoming Liu
Financial Modelling 2557A/B Lecture Notes - Lecture 5: Arbitrage, Market Maker, Financial Engineering
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Long underlying benefits from price increase - short underlying benefits from price decrease Long Call = Buy the right to buy at K = long in underlying Short Call = Sell right to buy at K = short in underlying Long ...

Financial Modelling
Financial Modelling 2557A/B
Xiaoming Liu
Financial Modelling 2557A/B Lecture Notes - Lecture 1: Dividend Yield
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Security: A document that confers upon its owner a financial claim 3 categories of securities: 1. Debt Securities - bonds, bank notes, etc. 2. Equity Securities - common stock 3. Der...

Financial Modelling
Financial Modelling 2557A/B
Xiaoming Liu
Financial Modelling 2555A/B Lecture Notes - Lecture 5: Dual-Energy X-Ray Absorptiometry, Human Body Weight, Standard Anatomical Position

Dietary and Nutritional Assessment: Lecture 5 Midterm – mostly MC, covers up to lect 5, case study questions, calculator req’d, 2 hours, classroom or the auditorium (watch out for OWL), ask about symptoms referring to sp...

Financial Modelling
Financial Modelling 2555A/B
Eric Ball
Financial Modelling 2555A/B Lecture Notes - Lecture 5: Dual-Energy X-Ray Absorptiometry, Body Composition, Human Body Weight

Dietary and Nutritional Assessment: Lecture 5 Midterm – mostly MC, covers up to lect 5, case study questions, calculator req’d, 2 hours, classroom or the auditorium (watch out for OWL), ask about symptoms referring to sp...

Financial Modelling
Financial Modelling 2555A/B
Eric Ball

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