AIM: Derive the basic equilibrium formula for pricing commodity forwards and futures

The forward price is equal to the expected spot price in the future, but discounted to the present.

Non storability
AIM: Explain the effect non‐storability has on electricity prices

Because electricity cannot (mostly) be stored, the forward market provides “invaluable price discovery.” Price changes largely reflect “[consensus] changes in the expected future spot price.

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A spread strategy is a position with two or more options of the same type (i.e., two or more calls; or, two or more puts).

… bull spread (type of vertical spread)

buy (long) a call option and sell (short) a call option on the same stock (and same expiration) but with a higher strike price. In this example, long call (strike = $20, premium = $1.99) + short call at higher strike (strike = $23, premium = $0.83)
Features of bull spread:

• Net debit but outlook is bullish

… Bear spread (type of vertical spread)

Buy (long) a call option call option and sell (short) a call option on the same stock (and same expiration) but with a lower stock price. In this example, bear spread: long put (strike = $23, premium = $2.93) + short put at lower strike (strike = $20, premium = $1.20)
Features of bear spread:

• Net debit but outlook is bearish

… Butterfly spread (sideway strategy)

Buy a call option at low strike price K1, buy a call option with high strike price K3, and sell two call options at strike price K2 halfway between K1 and K2. In this example, the butterfly spread: Long call (strike @ $18, premium = $3.21), long call (strike @ $22, premium = $1.13 ), short two calls (strike @ $20, premium = $1.99)

Features of butterfly spread:

• Expects low volatility (range-bound), Capped risk

… Calendar spread

In a calendar spread, the options have the same strike price but different expiration dates. The calendar spread can be created with calls or puts.
Two calls: sell a call option with strike price K1 and buy a call option with same strike price K1 but with a longer maturity term
Two puts: sell a put option with strike price K1 and buy a put option with same strike price K1 but with a longer maturity term

Short call with 1 year maturity (strike = $20, premium = $1.99) +Long call with 1.25 year maturity (strike = $20, premium = $2.27)

… Diagonal spread

In a diagonal spread, both the expiration date and the strike price of the calls are different.

… Box spread

A box spread is a combination of a bull call spread with strike prices K1 and K2 and a bear put spread with the same two strike prices. The payoff from a box spread is always K2 – K1.
The value of the box spread is always the present value of its payoff or (K2-K1)*EXP(-rT).

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'Islamic finance has big potential in Russia'

04/03/2010 06:00:00 AM GMT

Much has been written recently about the Russian government thinking of reviewing legislation to facilitate Islamic finance. Maxim Osintsev is a Russian banker with a difference. He is a fluent Arabic speaker and has a passion for Islamic finance, which he says comes from the heart. As managing director, Oil & Gas Department at Sberbank, the largest commercial bank in Russia, he is on a mission to convince his colleagues and senior management that purely as a business proposition Islamic banking makes sense because there is a ready made potential market of 20 million Muslims in the federation. Sberbank (the National Savings Bank of Russia) is 60 percent owned by the Russian government through the Central Bank of Russia and 40 percent by the private sector including 24 percent by foreign investors and its shares are publicly listed and traded on various stock exchanges including the London Stock Exchange. Not surprisingly, the chairman of Sberbank's supervisory committee is Sergey Ignatiev, who is also the chairman of the Central Bank of Russia. Sberbank has a 50 percent share of retail deposits and 31 percent share of the total Russian loan market. Its total assets at end January 2010 were 6.99 trillion rubles. At the same time Sberbank is also expanding overseas and is set to enter the GCC (Gulf Cooperation Council) market, which is another reason why it should also have Islamic financial products in its portfolio. Here Osintsev discusses with Arab News why Islamic finance has big potential in Russia and the CIS countries, and outlines a potential roadmap for the future implementation of Islamic finance in the country. Much has been written recently about the Russian government thinking of reviewing legislation to facilitate Islamic finance. What is the state of Islamic finance in Russia? At the moment there is only potential, for Islamic finance has yet to come to Russia. There has been the odd financial institution trying to introduce an Islamic financial product. The potential for Islamic finance however is great. In Russia there are 20 million Muslims mainly in Tatarstan and the northern Caucasus. Islamic finance is not only for Muslims but for anyone interested in socially responsible investments and ethical finance. Sberbank is currently expanding its presence abroad. We have a wholly-owned subsidiary bank in Kazakhstan and Ukraine. We are also looking to buy a bank in Belarus and we have opened representative offices in China and India respectively. Hopefully we are also contemplating to open a representative office or branch in the Middle East, either in Abu Dhabi, Dubai or Bahrain. I think there is a strong probability that we will first open a representative office in Abu Dhabi. What is your take on the Islamic finance proposition? The logic is very simple. Firstly, there is a market and demand for such services. There are after all 20 million people who are potential customers. Why should we overlook this opportunity? Secondly, if we are thinking of entering the Middle East markets, then it is necessary to offer such products. Having Islamic financial products as part of our services makes sense and I think it would be in Sberbank's interest to do offer them. I recently organized a special in-house seminar for our senior management, including Herman Gref, the chairman of Sberbank's management board and CEO, to familiarize them with this alternative system of financial management and the concepts behind Islamic banking. Islamic finance is the interest of my heart. I graduated from Moscow State University specializing in Arabic language and the economies of the Arab world. After graduation, I worked in the Russian Trade Mission in Libya for five years. I am interested in promoting Islamic finance in Russia and personally I think the bank can do much in this field. In the wake of the global financial crisis and the attack on "Casino Capitalism", do you think that Islamic finance has something to offer to emerging economies such as Russia? I think Islamic finance is a viable alternative to Casino Capitalism and also a good niche banking proposition. If such services are in demand, why don't we offer them? How are your colleagues at Sberbank viewing your interest in Islamic finance? Sberbank is very Russian and a very traditional bank. When I was first started attending seminars on Islamic banking, some of my colleagues ridiculed and laughed at me. Others were skeptical about Islamic banking. After I organized the seminar in the bank, there was great interest and many of my colleagues participated in the seminar. My legal counsel is now very interested in Islamic finance. My approach is slowly and slowly educating and creating awareness of Islamic finance. Has there been any reaction from or interaction with the CBR? The senior officials at the CBR are highly qualified and educated and I am sure that they are aware of the existence of Islamic finance, but I think they are not familiar with its concepts or principles. The CBR must be aware of the developments toward authorization of Islamic banks in the UK, and the introduction of tax neutrality laws to facilitate the introduction of Islamic financial products in the UK, France, Luxembourg and Ireland. They cannot ignore these developments in Europe. As the largest bank in Russia, we too cannot ignore this phenomenon sweeping the European Union. I sincerely hope that we can persuade the CBR to perhaps set up an ad hoc Islamic finance advisory group to demystify and explain Islamic finance to the CBR and eventually to promote new financial inclusion policies that would facilitate the adoption of new regulations for banks involved in alternative finance such as Islamic banking. I understand this is how the UK also started with Islamic finance, with the Bank of England setting up such an advisory group. I feel I have the responsibility for lobbying for the establishment of such an advisory group. My task is to promote the idea of Islamic finance to my top management. I also hope to set up an internal working group on Islamic finance at Sberbank. Do you think that non-Muslim countries mistakenly see Islamic finance only as a religious phenomenon as opposed to an alternative system of financial management? We should not look at Islamic finance as a religious phenomenon per se. It is a faith-based alternative ethical system of financial management. The word Islamic does not appear in the UK legislation for such products including sukuk, where they call them Alternative Financial Investment Bonds. Unfortunately, Europeans are afraid of the word "Islamic" because of its religious connotations. What is potential for Islamic finance in the Russian economy? The potential benefit for the Russian economy is huge, especially financing infrastructure projects through the issuance of sukuk, whose major subscribers these days can be 65 percent from the West including hedge funds. There will be some balance between interest of Russian corporates interested in sukuk and investors interested in buying such papers. There are signs that Russia and the CIS countries are just starting to look at sukuk and other such products. For Sberbank, there is a simple logic - if we expand into the Middle East, then it becomes imperative to offer Islamic financial products. Sberbank is a traditional bank with a universal banking license comprising retail banking and investment banking. We have a slightly different model and a plan for up to 2016. Currently we only offer commercial banking services but we are now in the process of establishing an investment banking arm. We are actively considering issuing sukuk. We have a wholly-owned transport subsidiary which owns a good asset pool - transport railway carriages, trucks and other industrial goods - ideal for securitization and asset-backed sukuk issuances. This interest at the moment is in-house and we have not approached the CBR or the Capital Markets Authority, the securities regulator in Russia in the above respect. It is too premature to talk about other Islamic finance products for the Russian market. But I believe sukuk could be the first such product - both corporate and retail. -- Arab News

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A week ago I was asked this question... How difficult is the FRM in comparison to the CFA.  I'm reading both FRM & Can't Finish Actuary  mmmm FRM is tough NO BS don't take my word for it.
Read what these guys have to say..... http://www.linkedin.com/answers/professional-development/professional-organizations/PRO_ORG/495370-14286389

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IslamicAdvisory.com, the only online Islamic Finance training organization, is about to launch its CIFE program. Learn how this will help you advance your career by logging on to www.IslamicAdvisory.com.
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Can you really be sure that your 3-year old workbook or last year’s CD is up-to-date? With the CIFE™, when Islamic finance innovates, our online content innovates right there with it. So you can be sure that you’re never left behind.
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Style Matters In Financial Modeling

Let's say you're perusing the want ads and come upon an ad for an equity analyst. The pay is great; there are travel opportunities. It looks like the job for you. Glancing down the list of qualifications, you mentally check off each one:

• Bachelor's in engineering or mathematics - check
• Master's in economics or business administration - check
• Curious, creative thinker - check
• Can interpret financial statements - check
• Strong technical analytical skills - check
• Modeling experience required - check, no wait, better get some 8x10 glossies made up.

The truth is, when companies want their equity analysts to have modeling experience they don't care how photogenic they are. What the term refers to is an important and complicated part of equity analysis known as financial modeling. In this article, we'll explore what a financial model is and how to create one. (To learn more about a job as an equity analyst, see Becoming A Financial Analyst.)

Click to learn more http://www.investopedia.com/articles/financialcareers/07/financial_modeling.asp

 

 

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