FORMULAE SHEET

for:
(Corporate) Financial Risk Management (from Hull text 5th edition) (plus 4th edition)

(1) Determining forward and future prices (Chapter 5) /(Chapter 3)

F = S0 exp (rT) (5.1, p. 101) /(3.5, p. 46)

F = (S0 – I) exp (rT) (5.2, p. 103) /(3.6, p. 49)
F = S0 exp[(r – rf) T ] (5.9, p. 111) /(3.7, p. 51)

f = (F- K) exp (-rT) (5.4, p. 106) /(3.8, p. 51)

f = S0 - K exp (-rT) (5.5, p. 106) /(3.8, p. 51)
f = S0 - I - K exp (-rT) (5.6, p. 107) /(3.10, p. 52)

(2) Properties of stock options (Chapter 9) /(Chapter 8)

c  S0 (p. 210) /(p. 186)

p  X exp(- r T) (p. 210) /(p. 187)

c  S0 – X exp (- r T) (p. 211) /(p. 188)

p  X exp (- r T) – S0 (p. 213) /(p. 189)

(3) Put – Call Parity equation (Chapter 9) /(Chapter 8)

S0 + p - c = X exp (- r T) (9.3, p.213) /(8.3, p.191)

S0 exp(- q T) + p - c = X exp (- r T) (13.3, p.288) /(12.3, p.256)

(4) Binomial probability formulae (Chapter 11) /(Chapter 10):

p = exp(rT) – d [ CH.11 p. 246: equations 11.2/11.3]

u–d [ CH.10 p. 221: equations 10.2/10.3]

c = exp(-rT) [ p cu + (1 – p) cd ]
p = exp(-rT) [ p pu + (1 – p) pd ]

f = exp(-2rT). [p2fuu + 2p(1-p)fud + (1-p)2fdd] (11.10, p. 251)

(10.8, p. 225)
(5) Black-Scholes formulae(Chapter 12) /(Chapter 11)

[CH 12 p. 273: equation 12.5/ 12.6] /[CH 11 p. 241: equation 11.5/ 11.6]

c = S0. N(d1) – exp(-rT). X. N(d2)

p= X . exp(-rT) . N(-d2) – S0 . N(-d1)

d1 = In(S/X) + (r + 2/2)T
 T

d2 = d1 -  T

(6) Black-Scholes formulae for stock indices and currencies

(Chapter 13) /(Chapter 12)

[CH 13 p. 298: equation 13.11/ 13.12] /[CH 12 p. 267: equation 12.11/ 12.12]

c = exp(-r T ) . [ F. N(d1) – X . N(d2) ]

p= exp(-r T ) . [ X. N(-d2) – F . N(-d1) ]

F = S. exp [ (r – rf). T ]

d1 = ln(F/X) + (2/2)T d2 = d1 -  T
 T

(7) Interest Rate Futures

[CH 6 p. 142: eqn 6.10] /[CH 5 p. 122: eqn 5.14]

N = P x Dp
Fc x D F

(8) Value at Risk

[CH 18 p. 398: eqn 18.5] /[CH 16 p. 342: eqn 16.5]

change in value of portfolio = delta x S x percentage change in S

+ ½ x S2 x gamma x (percentage change in S)2

[See “Single-Asset Case” CH 18 p. 390] /[CH 16 p. 335]

N day 99% value at risk = 2.33 x N x daily standard deviation

N day 95% value at risk = 1.65 x N x daily standard deviation