Derivatives for Level 1 CFA® Exam

Explore forward contracts, including long and short positions, deliverable and cash settlements, and hedging with a wheat example to illustrate pricing, risk, and default considerations.

Explain forward rate agreements as contracts to fix a future interest rate, using LIBOR or EURIBOR as references, and compare long and short positions with cash-settled payoffs.

Explore equity, bond, and currency forward contracts, their delivery or cash settlement, and hedging against price risk with stock indices and stock portfolios.

Explore how swaps exchange cash flows between fixed and floating rates over settlement periods and terminate via mutual termination, offsetting contracts, or swaption. Learn about currency, interest-rate, and equity swaps.

Navigate key CFA level 1 derivative concepts through test guidance on forward contracts, deliverable versus cash settlement, currency swaps, interest rate options, and hedging strategies.

Explore futures vs forwards, including exchange-traded standardized futures with daily settlement and margin requirements, contrasted with over-the-counter, customized forwards and their delivery or cash settlement.

Explore futures transactions, including margin types (initial, maintenance, and variation), settlement and marking to market, and methods to close, cash settlement, or deliver futures contracts.

Explore futures on treasury bills, eurodollar deposits, treasury bonds, stock indices, and currencies, including cash settlement, delivery options, and price quotation mechanics.

Explore termination and marking to market of futures, daily settlement, and margin requirements, including exchange for physicals and cash-settled treasury and eurodollar futures.

Explore how call and put options give holders the right to buy or sell an underlying asset at a strike price, with premium and American versus European exercise.

Compute the payoff for American and European calls and puts at expiration using the max rule, and classify options as in-the-money, at-the-money, or out-of-the-money with intrinsic and time value.

Examine how underlying price, dividends, exercise price, time to expiration, volatility, and interest rates affect option values, with delta, theta, vega, and rho for calls and puts.

Analyze intrinsic value and in-the-money versus out-of-the-money put and call options, and compare American and European options and their exercise rights.

Explore put–call parity for european options, derive the relationship between call and put prices, and apply fiduciary call and protected put concepts through numerical examples.

Explore the lower bounds and maximum values of European and American options, using intrinsic value, time value, and put-call parity under the risk-free rate, with practical numerical examples.

Explore the main types of options—exchange-traded and over-the-counter, including equity, index, bond, currency, futures, and commodity options—detailing settlement, contract multipliers, and underlying assets.

Explore interest rate options, including calls, puts, caps, floors, and collars, with cash-settled, European-style payoffs based on the rate difference, notional principal, and day count.

Explore option strategies like covered calls and protective puts, detailing long and short call/put positions, intrinsic value, option premium, and breakeven points.

Explore key test guidance for derivatives, including option types, underlying assets, payoff calculations, interest rate options, caps and floors, and early exercise scenarios for the CFA Level I exam.

Explain how derivative instruments are valued and settled, including zero value at issuance for forwards and futures, option premiums, and the roles of intrinsic and time value.

Explore over-the-counter and exchange-traded derivatives, including forwards, swaps, futures, and options. Analyze payoff calculations, settlement methods, and concepts like equity swaps and rate risk.