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Formulas that you should know for the IPT2 exam 2014-2015

Investment and Portfolio Theory 2 (Universiteit van Amsterdam)

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Formulas that you should know (memorize!) for the IPT2 exam 2014-2015
Please note that the formulas below will be assumed common knowledge at the exact; you're to
learn them by heart, these will NOT be provided to you at the exam.

* Put-call parity:

X
C  S0  P
(1  rf )T

* The Black-Scholes formula:

 rf T
C  S0 N (d1 )  XN (d 2 )e
ln( S0 / X )  (rf   2 / 2)T
d 1 ; d 2  d1   T
 T

This includes the following as well: the delta of a call (which is N(d1)) ; the approach needed to find an
approximation for the change of an option value based on the delta or on delta and gamma together,
as discussed in the workgroups.

Formula's for Greeks other than delta (i.e. you should know the formula for the delta) will be
provided, should they be needed at the exam.

* Delta-gamma hedging formula

 1  2
  S  S 2
S 2 S 2

Gamma  S 
1
In words: change in the value (of the derivative instrument)  Delta  S 
2

* Spot-futures parity:

F0  S0 (1  rf )  D  S0 (1  rf  d )T
dD
S0
* Discounting based on continuously compounded interest rates:

Present Value ( X )  Xe rT

* CAPM

rportfolio  rf   (rM  rf )  e  

Baixado por Nuno Lourisela (nunolourisela@hotmail.com)

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* Covered interest rate parity

F
1  rf (UK )  0  1  rf (US )
E0

rearranged:
F0 1  rf (US )

E0 1  rf (UK )

* Net asset value

Market Value of Assets − Liabilities

NAV =
Number of Shares Outstanding

* Fund return

NAV1 − NAV0 + Income and capital gain distributions

Rate of return =
NAV0

* Fund turnover rate:

Value of stocks sold and replaced

Turnover rate =
Total portfolio value

You should know by heart all the performance measures (Jensen’s alpha, information ratio, Sharpe
ratio, Treynor ratio, M2 measure, T2 measure).

 P  rP   rf   P (rM  rf ) 
Jensen’s alpha:

Information ratio: IR = ap / s(ep)

(rP  rf )
Sharpe ratio: P

(rP  rf )
Treynor ratio: P

M2 measure:
M 2  rP*  rM

̅̅̅̅−𝑟
𝑟 𝑃 ̅̅̅
𝑓
T2 measure: 𝑇 2 = 𝑇𝑃 − (𝑟𝑀 − 𝑟𝑓 ) = − (𝑟𝑀 − 𝑟𝑓 )
𝛽𝑃

Baixado por Nuno Lourisela (nunolourisela@hotmail.com)