Derivatives

In this section

• Chapter 1: Introduction to Derivatives
  Chapter 1: Introduction to Derivatives (CFA Level 1): Key concepts, definitions, and exam tips with practical examples. Use it to reinforce intuition and avoid common pitfalls.
  • Definition and Characteristics of Derivatives
    Definition and Characteristics of Derivatives (CFA Level 1): Fundamental Concepts, Relation to Underlying Assets, and Notional Amount. Key definitions, formulas, and exam tips.
  • Forward Commitments vs. Contingent Claims
    Forward Commitments vs. Contingent Claims (CFA Level 1): Key Characteristics of Forward Commitments, Key Characteristics of Contingent Claims, and Comparing the Two: Symmetrical vs. Asymmetrical Payoffs. Key definitions, formulas, and exam tips.
  • Derivative Markets and Participants
    Derivative Markets and Participants (CFA Level 1): Key Participants in Derivative Markets, Organized Exchanges vs. OTC Market Structures, and Liquidity and Market Depth. Key definitions, formulas, and exam tips.
  • Exchange-Traded vs. Over-the-Counter Derivatives
    Exchange-Traded vs. Over-the-Counter Derivatives (CFA Level 1): Exchange-Traded Derivatives, Standardization and Uniform Contracts, and Role of the Clearinghouse. Key definitions, formulas, and exam tips.
  • Role of Clearinghouses and Regulatory Environment
    Role of Clearinghouses and Regulatory Environment (CFA Level 1): Core Function of Clearinghouses, Daily Marking to Market, and Margin Systems and Their Role. Key definitions, formulas, and exam tips.
  • Classification of Underlying Assets
    Classification of Underlying Assets (CFA Level 1): Major Categories of Underlying Assets, Equity Derivatives, and Fixed Income Derivatives. Key definitions, formulas, and exam tips.
  • Distinguishing Hedgers, Speculators, and Arbitrageurs
    Distinguishing Hedgers, Speculators, and Arbitrageurs (CFA Level 1): Key Distinctions and Motivations, Hedgers, and Common Examples. Key definitions, formulas, and exam tips.
  • Historical Milestones in Derivative Markets
    Historical Milestones in Derivative Markets (CFA Level 1): Early Roots of Derivatives: Ancient and Medieval Times, Dojima Rice Exchange: The First Organized Futures, and Standardization in Chicago: The CBOT. Key definitions, formulas, and exam tips.
  • Conventions in Quoting Derivative Prices
    Conventions in Quoting Derivative Prices (CFA Level 1): Importance of Quoting Conventions, Equity Options: Premiums per Share, and Bond Futures: Price per $100 Notional. Key definitions, formulas, and exam tips.
  • Global vs. Regional Derivative Markets
    Global vs. Regional Derivative Markets (CFA Level 1): Global Derivative Markets: The Big Picture, Cross-Listing and Accessibility, and Macroeconomic Spillovers. Key definitions, formulas, and exam tips.
  • Weather, Energy, and Carbon Emissions Derivatives
    Weather, Energy, and Carbon Emissions Derivatives (CFA Level 1): Weather Derivatives, Pricing Complications, and Energy Derivatives. Key definitions, formulas, and exam tips.
  • Automated Trading and High-Frequency Trading Environments
    Automated Trading and High-Frequency Trading Environments (CFA Level 1): Rise of Automated Trading, Essentials of High-Frequency Trading, and Algorithmic Strategies in Derivatives. Key definitions, formulas, and exam tips.
  • LIBOR Transition and Risk-Free Reference Rates
    LIBOR Transition and Risk-Free Reference Rates (CFA Level 1): Why the Market Transitioned Away from LIBOR, Key Differences Between LIBOR and New RFRs, and Major RFRs Around the World. Key definitions, formulas, and exam tips.
  • Technological Innovations in Exchange Operations
    Technological Innovations in Exchange Operations (CFA Level 1): Electronic Trading Platforms and Match Engines, Evolution of Electronic Trading, and AI-Driven Analytics and Product Innovation. Key definitions, formulas, and exam tips.
  • Digital Asset Derivatives (Cryptocurrencies and Tokenized Assets)
    Digital Asset Derivatives (Cryptocurrencies and Tokenized Assets) (CFA Level 1): Basic Structure of Digital Asset Derivatives, Futures and Options on Major Cryptocurrencies, and Perpetual Swaps. Key definitions, formulas, and exam tips.
  • Peer-to-Peer Derivative Platforms
    Peer-to-Peer Derivative Platforms (CFA Level 1): Mechanics of Peer-to-Peer Derivative Platforms, Customizable Terms, and Counterparty Risk Considerations. Key definitions, formulas, and exam tips.
  • Market Microstructure and Liquidity Effects on Derivative Trading
    Market Microstructure and Liquidity Effects on Derivative Trading (CFA Level 1): Which factor best describes the potential effect of and When an exchange uses price-time priority for matching. Key definitions, formulas, and exam tips.
  • Interoperability Among Global Clearinghouses
    Interoperability Among Global Clearinghouses (CFA Level 1): Key Concepts in Interoperability, Basics of CCP Interoperability, and Netting, Margin Benefits, and Capital Efficiency. Key definitions, formulas, and exam tips.
  • Security Token Offerings and Fractionalization of Real Assets
    Security Token Offerings and Fractionalization of Real Assets (CFA Level 1): Rationale and Market Evolution, Why STOs?, and Why Fractionalization?. Key definitions, formulas, and exam tips.
  • Cross-Border Regulatory Harmonization
    Cross-Border Regulatory Harmonization (CFA Level 1): Intersections of Cross-Border Regulation, Why Locations Matter So Much, and Push toward Harmonization. Key definitions, formulas, and exam tips.
  • Exchange-Traded Notes (ETNs)
    Exchange-Traded Notes (ETNs) (CFA Level 1): Understanding the Basics of ETNs, Key Structural Features, and Why Credit Risk Matters So Much. Key definitions, formulas, and exam tips.
• Chapter 2: Forward and Futures Contracts
  Chapter 2: Forward and Futures Contracts (CFA Level 1): Key concepts, definitions, and exam tips with practical examples. Use it to reinforce intuition and avoid common pitfalls.
  • Forward Contracts: Structure, Payoffs, and Settlement
    Forward Contracts: Structure, Payoffs, and Settlement (CFA Level 1): Key Elements of a Forward Contract, Payoff Profiles, and Settlement Mechanisms. Key definitions, formulas, and exam tips.
  • Futures Contracts: Marking to Market and Margins
    Futures Contracts: Marking to Market and Margins (CFA Level 1): Standardization and Clearinghouse Support, Key Components of Futures Margins, and Quick Anecdote. Key definitions, formulas, and exam tips.
  • Forward vs. Futures: Key Distinctions
    Forward vs. Futures: Key Distinctions (CFA Level 1): Bespoke Nature of Forward Contracts, Key Features of Futures, and Margining and Daily Settlement. Key definitions, formulas, and exam tips.
  • Margining, Collateral, and Settlement
    Margining, Collateral, and Settlement (CFA Level 1): Purpose of Margin in Futures Contracts, Initial Margin, and Maintenance Margin and Margin Calls. Key definitions, formulas, and exam tips.
  • Index and Currency Futures
    Index and Currency Futures (CFA Level 1): Stock Index Futures, Why They Matter, and Contract Specifications. Key definitions, formulas, and exam tips.
  • Commodity, Interest Rate, and Equity Futures
    Commodity, Interest Rate, and Equity Futures (CFA Level 1): Test Your Knowledge: Commodity, Interest Rate, and Equity and Which of the following is most commonly associated. Key definitions, formulas, and exam tips.
  • Physical vs. Cash Settlement
    Physical vs. Cash Settlement (CFA Level 1): Why Differentiate Between Physical and Cash Settlement, Physical Settlement in Depth, and Physical Delivery Basics. Key definitions, formulas, and exam tips.
  • Forward Rate Agreements (FRAs)
    Forward Rate Agreements (FRAs) (CFA Level 1): Core Concepts and Market Usage, Anatomy of an FRA, and Timeline of an FRA. Key definitions, formulas, and exam tips.
  • Calendar Spreads and Interdelivery Spreads
    Calendar Spreads and Interdelivery Spreads (CFA Level 1): Fundamentals of Calendar Spreads, Mechanics of a Calendar Spread, and Backwardation vs. Contango. Key definitions, formulas, and exam tips.
  • Clearing House Variation and Initial Margin Calculations
    Clearing House Variation and Initial Margin Calculations (CFA Level 1): Role of the Clearinghouse, Variation Margin: A Daily Settlement Mechanism, and Concept of Initial Margin. Key definitions, formulas, and exam tips.
  • Exchange for Physical (EFP) Transactions
    Exchange for Physical (EFP) Transactions (CFA Level 1): Basics of EFP Mechanics, Rationale and Key Benefits, and EFP vs Open-Market Trading and Related Transactions. Key definitions, formulas, and exam tips.
  • Algorithmic Execution in Futures Markets
    Algorithmic Execution in Futures Markets (CFA Level 1): Foundations of Algorithmic Trading in Futures, Why Algorithms Are Useful in Futures Markets, and Market Microstructure and Execution Quality. Key definitions, formulas, and exam tips.
  • Spread Trading in Futures Markets
    Spread Trading in Futures Markets (CFA Level 1): Key Concepts in Spread Trading, Basic Idea of Spread Trading, and Why Choose Spread Trading?. Key definitions, formulas, and exam tips.
  • Cross-Margining Among Different Futures Exchanges
    Cross-Margining Among Different Futures Exchanges (CFA Level 1): Key Concepts, Cross-Margining Basics, and Offsetting Positions. Key definitions, formulas, and exam tips.
  • Microstructure of the Futures Market
    Microstructure of the Futures Market (CFA Level 1): Central Limit Order Book (CLOB), How Orders Flow, and Price/Time Priority. Key definitions, formulas, and exam tips.
  • Tail Risk in Futures Trading
    Tail Risk in Futures Trading (CFA Level 1): Understanding Tail Risk, Key Drivers of Tail Risk in Futures, and Leverage and Gap Moves. Key definitions, formulas, and exam tips.
  • Portfolio Margining Approaches for Futures Traders
    Portfolio Margining Approaches for Futures Traders (CFA Level 1): Key Concepts of Portfolio Margining, Portfolio Margin vs Traditional (Strategy-Based) Margin, and Risk Calculation Methodologies. Key definitions, formulas, and exam tips.
  • Basis Risk in Futures Hedging
    Basis Risk in Futures Hedging (CFA Level 1): Understanding Basis Risk, Defining Basis, and Why Basis Risk Happens. Key definitions, formulas, and exam tips.
• Chapter 3: Swaps
  Chapter 3: Swaps (CFA Level 1): Key concepts, definitions, and exam tips with practical examples. Use it to reinforce intuition and avoid common pitfalls.
  • Swaps as a Series of Forward Contracts
    Swaps as a Series of Forward Contracts (CFA Level 1): Conceptualizing Swaps as a Series of Forwards, Valuation at Inception, and Ongoing Valuation and Net Settlement. Key definitions, formulas, and exam tips.
  • Interest Rate Swaps
    Interest Rate Swaps (CFA Level 1): Key Concepts, Basic Mechanism of an Interest Rate Swap, and Common Market Conventions. Key definitions, formulas, and exam tips.
  • Currency Swaps
    Currency Swaps (CFA Level 1): Understanding the Mechanics of a Currency Swap, Why Currency Swaps Are Used, and Visualizing the Payment Flows. Key definitions, formulas, and exam tips.
  • Equity and Commodity Swaps
    Equity and Commodity Swaps (CFA Level 1): Equity Swaps: Key Concepts, Structure of an Equity Swap, and Rationale for Using Equity Swaps. Key definitions, formulas, and exam tips.
  • Valuation of Swaps at Initiation and During the Contract
    Valuation of Swaps at Initiation and During the Contract (CFA Level 1): Key Concepts, Why Value a Swap?, and Valuation at Initiation. Key definitions, formulas, and exam tips.
  • Swap Termination and Novation
    Swap Termination and Novation (CFA Level 1): Key Methods of Early Termination, Close-Out/Termination Payment, and Offsetting Swap. Key definitions, formulas, and exam tips.
  • Interest Rate Caps, Floors, and Swaptions
    Interest Rate Caps, Floors, and Swaptions (CFA Level 1): Key Concepts in Interest Rate Caps, Mechanics of a Cap, and Typical Users. Key definitions, formulas, and exam tips.
  • Freight and Commodity Swaps
    Freight and Commodity Swaps (CFA Level 1): Freight Swaps: A Deeper Dive, Market Participants, and Freight Rate Indices. Key definitions, formulas, and exam tips.
  • Asset Swaps and Applications
    Asset Swaps and Applications (CFA Level 1): Conceptual Foundations, Mechanics in Brief, and How Asset Swaps Work. Key definitions, formulas, and exam tips.
  • Weather and Catastrophe Swaps
    Weather and Catastrophe Swaps (CFA Level 1): Understanding Weather Swaps and Key Features of Weather Swaps. Exam-focused explanations with key terms and takeaways.
  • Political Risk Swaps
    Political Risk Swaps (CFA Level 1): political risk swap differs from a standard, Which of the following is a challenge in, and In a political risk swap, the “protection buyer”. Key definitions, formulas, and exam tips.
  • Inflation Swaps
    Inflation Swaps (CFA Level 1): Basic Mechanics of Inflation Swaps, Key Elements, and Comparing Inflation Swaps to Interest Rate Swaps. Key definitions, formulas, and exam tips.
  • Intra-Curve and Inter-Curve Swap Spreads
    Intra-Curve and Inter-Curve Swap Spreads (CFA Level 1): Defining Intra-Curve Swap Spreads, Typical Intra-Curve Spread Formula, and Defining Inter-Curve Swap Spreads. Key definitions, formulas, and exam tips.
  • Multi-Lateral Swap Compression Techniques
    Multi-Lateral Swap Compression Techniques (CFA Level 1): Understanding the Basics of Multi-Lateral Swap Compression, Mechanism of Multi-Lateral Compression, and Diagram: Multi-Lateral Compression Flow. Key definitions, formulas, and exam tips.
  • Forward Start and Accreting Swaps
    Forward Start and Accreting Swaps (CFA Level 1): Forward Start Swaps, Defining a Forward Start Swap, and How They Are Used. Key definitions, formulas, and exam tips.
  • Futurization of Swaps and Swap Futures
    Futurization of Swaps and Swap Futures (CFA Level 1): Key Drivers Behind Futurization, What Swap Futures Are—and Are Not, and Deliverable vs. Non-Deliverable Swap Futures. Key definitions, formulas, and exam tips.
  • Funded vs. Unfunded Swap Structures
    Funded vs. Unfunded Swap Structures (CFA Level 1): Test Your Understanding: Funded vs. Unfunded Swap Structures and In a funded swap, what typically happens at. Key definitions, formulas, and exam tips.
• Chapter 4: Options and Contingent Claims
  Chapter 4: Options and Contingent Claims (CFA Level 1): Key concepts, definitions, and exam tips with practical examples. Use it to reinforce intuition and avoid common pitfalls.
  • Call and Put Options: Definitions and Payoffs
    Call and Put Options: Definitions and Payoffs (CFA Level 1): Key Building Blocks, Call Option Payoff, and Visualizing a Long Call Payoff. Key definitions, formulas, and exam tips.
  • Intrinsic Value, Moneyness, and Time Value
    Intrinsic Value, Moneyness, and Time Value (CFA Level 1): Intrinsic Value, Moneyness, and Time Value. Exam-focused explanations with key terms and takeaways.
  • European vs. American Options
    European vs. American Options (CFA Level 1): Defining European and American Options, Real-World Impact of Early Exercise, and Why the Distinction Matters for Pricing. Key definitions, formulas, and exam tips.
  • Covered Calls and Protective Puts
    Covered Calls and Protective Puts (CFA Level 1): Covered Call Strategy, Core Concept, and Rationale and Basic Payoff. Key definitions, formulas, and exam tips.
  • Option Strategies and Payoff Diagrams
    Option Strategies and Payoff Diagrams (CFA Level 1): Bullish Strategies, Long Call, and Short Put. Exam-focused explanations with key terms and takeaways.
  • Exotic Options (Binary, Barrier, Asian)
    Exotic Options (Binary, Barrier, Asian) (CFA Level 1): Binary (Digital) Options, Concept and Payoff, and Uses and Applications. Key definitions, formulas, and exam tips.
  • Exchange Options and Compound Options
    Exchange Options and Compound Options (CFA Level 1): Exchange Options, Key Concepts in Exchange Options, and Margrabe Model. Key definitions, formulas, and exam tips.
  • Volatility Trading with Options
    Volatility Trading with Options (CFA Level 1): Concept of Volatility in Option Pricing, Why Volatility Matters, and Differences Between Implied and Realized Volatility. Key definitions, formulas, and exam tips.
  • Greek-Based Hedging Strategies
    Greek-Based Hedging Strategies (CFA Level 1): Delta: Price Sensitivity and Practical Delta Hedging. Exam-focused explanations with key terms and takeaways.
  • Lookback, Shout, and Cliquet Options
    Lookback, Shout, and Cliquet Options (CFA Level 1): Introductory Perspective, Lookback Options, and Types of Lookback Options. Key definitions, formulas, and exam tips.
  • Chooser and Rainbow Options
    Chooser and Rainbow Options (CFA Level 1): Chooser Options: Concept and Mechanics, Informal Pricing Intuition, and Practical Uses. Key definitions, formulas, and exam tips.
  • Employee Stock Options
    Employee Stock Options (CFA Level 1): Structure and Vesting, Valuation for Accounting Purposes, and Common Valuation Models. Key definitions, formulas, and exam tips.
  • Index and Basket Options
    Index and Basket Options (CFA Level 1): Key Features and Terminology, Why Use Index and Basket Options?, and Typical Index Option Payoffs. Key definitions, formulas, and exam tips.
  • Structured Warrants and Warrants vs. Options
    Structured Warrants and Warrants vs. Options (CFA Level 1): What Are Warrants?, Use of Warrants as Sweeteners, and Dilution Factor. Key definitions, formulas, and exam tips.
  • Real Option Approaches in Corporate Decision-Making
    Real Option Approaches in Corporate Decision-Making (CFA Level 1): Key Concepts of Real Options, Definition and Background, and Traditional NPV vs. Real Options. Key definitions, formulas, and exam tips.
  • Spread Options on Commodity Price Differences
    Spread Options on Commodity Price Differences (CFA Level 1): Background on Spread Options, Terminology, and Common Commodity Spread Options. Key definitions, formulas, and exam tips.
  • Volatility Targeting Strategies Using Options
    Volatility Targeting Strategies Using Options (CFA Level 1): Key Concepts and Definitions, Volatility Targeting, and Implied vs. Realized Volatility. Key definitions, formulas, and exam tips.
• Chapter 5: Credit Derivatives
  Chapter 5: Credit Derivatives (CFA Level 1): Key concepts, definitions, and exam tips with practical examples. Use it to reinforce intuition and avoid common pitfalls.
  • Basics of Credit Default Swaps
    Basics of Credit Default Swaps (CFA Level 1): Test Your Knowledge: Basics of Credit Default Swaps, Which of the following best describes the primary, and When a credit event occurs under a CDS. Key definitions, formulas, and exam tips.
  • Single-Name, Index, and Basket Swaps
    Single-Name, Index, and Basket Swaps (CFA Level 1): Single-Name CDS, Mechanics in a Nutshell, and Why Use Single-Name CDS?. Key definitions, formulas, and exam tips.
  • Total Return Swaps and Credit-Linked Notes
    Total Return Swaps and Credit-Linked Notes (CFA Level 1): Basics of Total Return Swaps, High-Level Concept, and Mechanics and Cash Flows. Key definitions, formulas, and exam tips.
  • Uses and Risks of Credit Derivatives
    Uses and Risks of Credit Derivatives (CFA Level 1): Key Uses of Credit Derivatives, Hedging, and Speculation. Key definitions, formulas, and exam tips.
  • Credit Events and Settlement Mechanisms
    Credit Events and Settlement Mechanisms (CFA Level 1): Understanding Credit Events, ISDA and the Standardization of Credit Events, and Key Types of Credit Events. Key definitions, formulas, and exam tips.
  • Credit Spread Options
    Credit Spread Options (CFA Level 1): Understanding Credit Spread Options, Why Are Credit Spread Options Useful?, and Payoff Structures and Examples. Key definitions, formulas, and exam tips.
  • Credit Derivatives in Emerging Markets
    Credit Derivatives in Emerging Markets (CFA Level 1): Market Structure and Participants, Common Motivations, and Liquidity, Transparency, and Regulatory Gaps. Key definitions, formulas, and exam tips.
  • Correlation and Risk in Credit Portfolios
    Correlation and Risk in Credit Portfolios (CFA Level 1): Systematic vs. Idiosyncratic Risk, Default Correlation and Multi-Name Credit Derivatives, and Role of Correlation. Key definitions, formulas, and exam tips.
  • Synthetic CDO Structures
    Synthetic CDO Structures (CFA Level 1): Key Building Blocks, Tranche Subordination, and SPV (Special Purpose Vehicle). Key definitions, formulas, and exam tips.
  • Credit Valuation Adjustment (CVA) for Credit Derivatives
    Credit Valuation Adjustment (CVA) for Credit Derivatives (CFA Level 1): What Is CVA?, Key Components of CVA, and Timeline Visualization. Key definitions, formulas, and exam tips.
  • Regulatory Capital Requirements for Credit Derivatives
    Regulatory Capital Requirements for Credit Derivatives (CFA Level 1): Understanding the Regulatory Capital Landscape, Basel III and Capital Adequacy, and Risk-Weighted Assets (RWA) for Credit Derivatives. Key definitions, formulas, and exam tips.
  • CDS Index Tranches
    CDS Index Tranches (CFA Level 1): Tranche Mechanics, Why Tranching?, and Role of Default Correlation. Exam-focused explanations with key terms and takeaways.
  • CDS on Asset-Backed Securities
    CDS on Asset-Backed Securities (CFA Level 1): Key Features and Structural Elements, ABS-Specific Credit Event Definitions, and Risk Mitigation and Speculative Uses. Key definitions, formulas, and exam tips.
  • Counterparty Exposure in CDS Trading
    Counterparty Exposure in CDS Trading (CFA Level 1): CDS contract typically requires daily marking-to-market. What and What is the principal advantage of using a. Key definitions, formulas, and exam tips.
  • Use of Credit Derivatives in Securitization
    Use of Credit Derivatives in Securitization (CFA Level 1): Basics of Securitization, Role of Credit Derivatives in Securitization, and Synthetic Securitization: Concept and Mechanics. Key definitions, formulas, and exam tips.
• Chapter 6: Derivative Benefits, Risks, and Uses
  Chapter 6: Derivative Benefits, Risks, and Uses (CFA Level 1): Practical explanations of core ideas, with key terms, formulas, and common exam pitfalls.
  • Risk Management and Hedging
    Risk Management and Hedging (CFA Level 1): Derivatives as Hedging Instruments, Establishing Hedge Objectives & The Hedge Ratio, and Long vs. Short Hedges. Key definitions, formulas, and exam tips.
  • Speculation and Leverage
    Speculation and Leverage (CFA Level 1): Speculative Goals vs Hedging, Role of Leverage in Speculative Positions, and Margin Requirements: Exchange-Traded and OTC. Key definitions, formulas, and exam tips.
  • Derivative-Related Risks
    Derivative-Related Risks (CFA Level 1): Market Risk, Counterparty Credit Risk, and Liquidity Risk. Exam-focused explanations with key terms and takeaways.
  • Counterparty Risk in OTC Markets
    Counterparty Risk in OTC Markets (CFA Level 1): Bilateral Nature of OTC Derivatives, Credit Analysis of the Counterparty, and Collateral and Margin Agreements. Key definitions, formulas, and exam tips.
  • Uses of Derivatives by Issuers and Investors
    Uses of Derivatives by Issuers and Investors (CFA Level 1): Corporate Issuers: Managing Cash Flows, Interest Rate Swaps for Debt Management, and FX Forwards for Currency Exposure. Key definitions, formulas, and exam tips.
  • Operational, Legal, and Liquidity Risks
    Operational, Legal, and Liquidity Risks (CFA Level 1): Operational Risk in the Derivatives Context, Settlement Failures and Payment Mismatches, and Mitigating Operational Risks. Key definitions, formulas, and exam tips.
  • Regulatory Considerations for Risk Management
    Regulatory Considerations for Risk Management (CFA Level 1): Context and Rationale, Key Post-Crisis Reforms, and Mandatory Clearing Thresholds. Key definitions, formulas, and exam tips.
  • Tax Implications of Derivative Transactions
    Tax Implications of Derivative Transactions (CFA Level 1): Classification of Gains and Losses, Capital Gains vs. Ordinary Income, and 60/40 Rule (U.S. Context). Key definitions, formulas, and exam tips.
  • Collateralization and Funding Costs
    Collateralization and Funding Costs (CFA Level 1): Role of Collateral in Derivative Markets, Initial vs. Variation Margin, and Initial Margin. Key definitions, formulas, and exam tips.
  • ESG Considerations and Sustainability Risk Hedging
    ESG Considerations and Sustainability Risk Hedging (CFA Level 1): Understanding ESG in Derivatives Markets, Green Derivatives: The “E” in ESG, and Carbon Emission Allowances and Their Role in Hedging. Key definitions, formulas, and exam tips.
  • Case Studies of Derivative Disasters
    Case Studies of Derivative Disasters (CFA Level 1): Barings Bank Collapse (1995), Long-Term Capital Management (LTCM) (1998), and Société Générale Rogue Trading (2008). Key definitions, formulas, and exam tips.
  • Hedge Accounting Considerations
    Hedge Accounting Considerations (CFA Level 1): Purpose of Hedge Accounting, Types of Hedges, and Fair Value Hedge. Key definitions, formulas, and exam tips.
  • Reporting and Disclosure of Derivative Positions
    Reporting and Disclosure of Derivative Positions (CFA Level 1): Financial Statement Footnotes, Regulatory Filings and Large Position Disclosures, and Fair Value Hierarchy Under IFRS and U.S. GAAP. Key definitions, formulas, and exam tips.
  • Internal Controls for Derivative Operations
    Internal Controls for Derivative Operations (CFA Level 1): Key Components of Internal Controls in Derivative Operations, Segregation of Duties, and Limit Management. Key definitions, formulas, and exam tips.
  • Cybersecurity Risks in Derivative Markets
    Cybersecurity Risks in Derivative Markets (CFA Level 1): Evolving Threat Landscape, Electronic and Algorithmic Trading Platforms, and Data Security and Confidentiality. Key definitions, formulas, and exam tips.
  • Role of Third-Party Custodians in Collateral Management
    Role of Third-Party Custodians in Collateral Management (CFA Level 1): Importance of Independent Custody, Tri-Party Repo Arrangements, and Collateral Verification and Eligibility. Key definitions, formulas, and exam tips.
  • Uncleared Margin Requirements for OTC Derivatives
    Uncleared Margin Requirements for OTC Derivatives (CFA Level 1): Background and Regulatory Evolution, Key Components of Uncleared Margin Requirements, and Variation Margin vs. Initial Margin. Key definitions, formulas, and exam tips.
  • Post-Trade Processing, Settlement, and Collateral Optimization
    Post-Trade Processing, Settlement, and Collateral Optimization (CFA Level 1): Affirmation and Confirmation, Clearing and Settlement, and Collateral Optimization Tools. Key definitions, formulas, and exam tips.
  • Risk Parity Strategies and Derivatives
    Risk Parity Strategies and Derivatives (CFA Level 1): Understanding Risk Parity, Key Idea: Equal Risk Contribution, and Role of Derivatives in Risk Parity. Key definitions, formulas, and exam tips.
  • Combinations and Overlays in Portfolio Management
    Combinations and Overlays in Portfolio Management (CFA Level 1): Fundamental Ideas and Definitions, Overlay Management, and Why Not Just Restructure the Core Portfolio?. Key definitions, formulas, and exam tips.
  • Real-Time Risk Management and Intraday Margin Calls
    Real-Time Risk Management and Intraday Margin Calls (CFA Level 1): Monitoring Market Volatility in Real-Time, Why Volatility Matters So Much, and Intraday Margin Calls: Key Concepts. Key definitions, formulas, and exam tips.
  • Cross-Asset Volatility and Correlation Trading
    Cross-Asset Volatility and Correlation Trading (CFA Level 1): Creating Multi-Asset Portfolios Using Derivatives, Volatility Trading Across Asset Classes, and Variance Swaps. Key definitions, formulas, and exam tips.
• Chapter 7: Arbitrage, Replication, and Cost of Carry
  Chapter 7: Arbitrage, Replication, and Cost of Carry (CFA Level 1): Key concepts explained with clear definitions, formulas, and exam-focused examples.
  • Principles of No-Arbitrage and the Law of One Price
    Principles of No-Arbitrage and the Law of One Price (CFA Level 1): Foundations of No-Arbitrage, Understanding Arbitrage, and Law of One Price (LOOP). Key definitions, formulas, and exam tips.
  • Replicating Payoffs with Derivatives
    Replicating Payoffs with Derivatives (CFA Level 1): Key Concepts in Replication, Constructing a Replicating Portfolio, and Payoff Diagram. Key definitions, formulas, and exam tips.
  • Cost of Carry Model for Pricing
    Cost of Carry Model for Pricing (CFA Level 1): Concept of Cost of Carry, Key Components of Cost of Carry, and Financing Cost. Key definitions, formulas, and exam tips.
  • Cash-and-Carry and Reverse Cash-and-Carry Strategies
    Cash-and-Carry and Reverse Cash-and-Carry Strategies (CFA Level 1): Cost-of-Carry Principle, Mechanics of Cash-and-Carry Arbitrage, and Mermaid Diagram: Cash-and-Carry Flow. Key definitions, formulas, and exam tips.
  • Mechanics of Arbitrage in Practice
    Mechanics of Arbitrage in Practice (CFA Level 1): Setting Up Arbitrage Trades in Real-World Environments, Margin Accounts and Borrowing, and Short-Selling Logistics. Key definitions, formulas, and exam tips.
  • Practical Limitations to Arbitrage and Market Frictions
    Practical Limitations to Arbitrage and Market Frictions (CFA Level 1): Market Frictions: The Core Obstacle, Bid–Ask Spread, and Short-Sale Constraints. Key definitions, formulas, and exam tips.
  • Multi-Asset Arbitrage Strategies
    Multi-Asset Arbitrage Strategies (CFA Level 1): Core Concepts of Multi-Asset Arbitrage, Convertible Bond Arbitrage, and Cross-Commodity Arbitrage. Key definitions, formulas, and exam tips.
  • Lease Rate Arbitrage
    Lease Rate Arbitrage (CFA Level 1): Lease Rate Arbitrage Concept, Mechanics of the Lease Rate Arbitrage Strategy, and Market Participants and Key Drivers. Key definitions, formulas, and exam tips.
  • Index Arbitrage in Equity Futures
    Index Arbitrage in Equity Futures (CFA Level 1): Key Elements of Index Arbitrage, Basic Concept, and Cost-of-Carry and Fair Value. Key definitions, formulas, and exam tips.
  • Conversion and Reversal Option Arbitrage
    Conversion and Reversal Option Arbitrage (CFA Level 1): Foundations of Put–Call Parity, Conversion Strategy, and How It Locks in Risk-Free Returns. Key definitions, formulas, and exam tips.
  • Synthetic Positions in Derivative Arbitrage
    Synthetic Positions in Derivative Arbitrage (CFA Level 1): Core Concepts of Synthetic Positions, Why Create Synthetic Positions?, and Put–Call Parity (The Foundation). Key definitions, formulas, and exam tips.
  • Pairs Trading as a Form of Arbitrage
    Pairs Trading as a Form of Arbitrage (CFA Level 1): Market Neutral Mindset, Key Concepts and Terminology, and Identifying Pairs and Spread Relationships. Key definitions, formulas, and exam tips.
  • Mispricing Measures and Price Discovery
    Mispricing Measures and Price Discovery (CFA Level 1): Key Concepts in Mispricing and Price Discovery, Price Discovery, and Implied Forward Rate vs. Actual Forward/Futures Quote. Key definitions, formulas, and exam tips.
  • Arbitrage in Crypto Futures and Perpetual Swap Markets
    Arbitrage in Crypto Futures and Perpetual Swap Markets (CFA Level 1): Understanding Perpetual Swaps, Cross-Exchange Arbitrage Strategies, and Funding Rate Imbalances. Key definitions, formulas, and exam tips.
  • Triangular Arbitrage in Currency Derivative Markets
    Triangular Arbitrage in Currency Derivative Markets (CFA Level 1): Foundational Concepts, Exchange Rates and Quotes, and Cross Rates. Key definitions, formulas, and exam tips.
• Chapter 8: Pricing and Valuation of Forwards and Futures
  Chapter 8: Pricing and Valuation of Forwards and Futures (CFA Level 1): Key concepts explained with clear definitions, formulas, and exam-focused examples.
  • Valuation of Forward Contracts at Initiation, During the Life, and at Expiry
    Valuation of Forward Contracts at Initiation, During the Life, and at Expiry (CFA Level 1): Forward Contracts: Fundamentals Refresher, Valuation at Initiation, and Intuition. Key definitions, formulas, and exam tips.
  • Determining Forward Prices for Various Underlyings
    Determining Forward Prices for Various Underlyings (CFA Level 1): Cost-of-Carry Basics, Adjustments for Dividends, and Storage Costs and Convenience Yields for Commodities. Key definitions, formulas, and exam tips.
  • Relationship between Spot, Forward, and Futures Prices
    Relationship between Spot, Forward, and Futures Prices (CFA Level 1): No-Arbitrage Foundation, Spot Price vs. Forward Price: The Basic Connection, and Futures: The Twist of Mark-to-Market. Key definitions, formulas, and exam tips.
  • Impact of Storage Costs and Convenience Yields
    Impact of Storage Costs and Convenience Yields (CFA Level 1): Understanding Storage Costs, Key Points About Storage Costs, and Convenience Yield: The Hidden Benefit of Holding the. Key definitions, formulas, and exam tips.
  • Convergence and Delivery
    Convergence and Delivery (CFA Level 1): Why Convergence Matters, Theoretical Backbone: No-Arbitrage and Cost of Carry, and Delivery in Physically Settled Contracts. Key definitions, formulas, and exam tips.
  • Hedging Strategies Using Forwards and Futures
    Hedging Strategies Using Forwards and Futures (CFA Level 1): Why Hedge?, Key Hedging Concepts, and Short Hedge. Key definitions, formulas, and exam tips.
  • Contango, Backwardation, and Term Structure of Futures Prices
    Contango, Backwardation, and Term Structure of Futures Prices (CFA Level 1): Term Structure of Futures Prices, Understanding Contango, and Why Contango Happens. Key definitions, formulas, and exam tips.
  • Deliverable vs. Cash-Settled Contracts
    Deliverable vs. Cash-Settled Contracts (CFA Level 1): Fundamental Concepts, Deliverable Contracts, and Cash-Settled Contracts. Key definitions, formulas, and exam tips.
  • Term Structure of Interest Rates in Forward Pricing
    Term Structure of Interest Rates in Forward Pricing (CFA Level 1): Key Concepts and Definitions, Relevance of the Yield Curve in Forward Pricing, and Single-Period Forward Pricing. Key definitions, formulas, and exam tips.
  • Volatility Index Futures (VIX and Others)
    Volatility Index Futures (VIX and Others) (CFA Level 1): Understanding the VIX, How the VIX Is Constructed, and Contract Specifications and Cash Settlement. Key definitions, formulas, and exam tips.
  • Seasonality Adjustments in Commodity Pricing
    Seasonality Adjustments in Commodity Pricing (CFA Level 1): Why Seasonality Matters, Identifying Seasonal Patterns, and Seasonality and the Forwards/Futures Curve. Key definitions, formulas, and exam tips.
  • Basis Trading in Commodity Markets
    Basis Trading in Commodity Markets (CFA Level 1): Defining the Basis, Why Basis Matters, and Influences on the Basis. Key definitions, formulas, and exam tips.
  • Machine Learning Approaches to Seasonal Commodity Pricing
    Machine Learning Approaches to Seasonal Commodity Pricing (CFA Level 1): Why Use Machine Learning for Seasonal Commodity Pricing and Using Machine Learning to Detect Seasonality. Key definitions, formulas, and exam tips.
  • Impact of Circuit Breakers on Derivative Trading
    Impact of Circuit Breakers on Derivative Trading (CFA Level 1): Rationale Behind Circuit Breakers in Derivative Markets, Common Types of Circuit Breakers, and How Circuit Breakers Affect Pricing and Valuation. Clear examples and common exam pitfalls.
  • Cross-Exchange Arbitrage Strategies
    Cross-Exchange Arbitrage Strategies (CFA Level 1): Fundamental Concepts in Cross-Exchange Arbitrage, Diagram: Flow of a Basic Cross-Exchange Arbitrage, and High-Frequency Trading and Latency Arbitrage. Key definitions, formulas, and exam tips.
  • Zero-Cost Collar Strategies in Commodity Markets
    Zero-Cost Collar Strategies in Commodity Markets (CFA Level 1): Construction of a Zero-Cost Collar, Basic Payoff Structure, and Why Commodity Producers Use Zero-Cost Collars. Key definitions, formulas, and exam tips.
  • Commodity Index Futures
    Commodity Index Futures (CFA Level 1): Key Elements of Commodity Index Futures, Quick Formula, and Roll Schedules. Key definitions, formulas, and exam tips.
  • Negative or Zero-Bound Interest Rate Environments
    Negative or Zero-Bound Interest Rate Environments (CFA Level 1): Why Negative or Zero-Bound Rates Matter, Key Cost-of-Carry Adjustments, and Role of Central Bank Policies. Key definitions, formulas, and exam tips.
• Chapter 9: Pricing and Valuation of Swaps
  Chapter 9: Pricing and Valuation of Swaps (CFA Level 1): Key concepts, definitions, and exam tips with practical examples. Use it to reinforce intuition and avoid common pitfalls.
  • Swaps as Portfolios of Forward Contracts
    Swaps as Portfolios of Forward Contracts (CFA Level 1): Swap Cash Flows as Forward Commitments, FRA Building Blocks, and Decomposing an Interest Rate Swap Diagrammatically. Key definitions, formulas, and exam tips.
  • Valuing Interest Rate Swaps and Swap Rates
    Valuing Interest Rate Swaps and Swap Rates (CFA Level 1): Basic Structure of an Interest Rate Swap, Swap Rate, and Valuing the Swap at Initiation. Key definitions, formulas, and exam tips.
  • Valuing Currency and Equity Swaps
    Valuing Currency and Equity Swaps (CFA Level 1): Key Conceptual Foundations, Anatomy of a Currency Swap, and Mechanics of Currency Swaps. Key definitions, formulas, and exam tips.
  • Impact of Notional Principal, Netting, and Collateral
    Impact of Notional Principal, Netting, and Collateral (CFA Level 1): Role of Notional Principal, Why It Matters, and Netting in Swaps. Key definitions, formulas, and exam tips.
  • Factors Affecting Swap Spreads
    Factors Affecting Swap Spreads (CFA Level 1): Understanding the Significance of Swap Spreads, Basics of Swap Spreads, and Key Drivers of Swap Spreads. Key definitions, formulas, and exam tips.
  • Terminating or Unwinding a Swap
    Terminating or Unwinding a Swap (CFA Level 1): Reasons for Exiting a Swap Early, Key Methods of Swap Termination, and Reverse Swap (Close-Out). Key definitions, formulas, and exam tips.
  • Cross-Currency Basis Swaps
    Cross-Currency Basis Swaps (CFA Level 1): How Cross-Currency Basis Swaps Work, Principal Exchanges and Notional Amounts, and Common Uses. Key definitions, formulas, and exam tips.
  • Structured Swaps (Amortizing, Accreting)
    Structured Swaps (Amortizing, Accreting) (CFA Level 1): Understanding Amortizing Swaps, Understanding Accreting Swaps, and Comparing to Bullet Swaps. Key definitions, formulas, and exam tips.
  • Spread Lock Agreements
    Spread Lock Agreements (CFA Level 1): Key Concepts, Mechanics of Spread Locks, and Diagram: Basic Structure of a Spread Lock. Key definitions, formulas, and exam tips.
  • Butterfly, Roller-Coaster, and Other Complex Swap Structures
    Butterfly, Roller-Coaster, and Other Complex Swap Structures (CFA Level 1): Butterfly Swaps, Concept and Motivation, and How It Works. Key definitions, formulas, and exam tips.
  • Central Clearing Requirements for OTC Swaps
    Central Clearing Requirements for OTC Swaps (CFA Level 1): Understanding Central Clearing, Key Regulatory Framework, and Margin Requirements: Initial and Variation. Key definitions, formulas, and exam tips.
  • Market Value vs. Credit Value Adjustments in Swaps
    Market Value vs. Credit Value Adjustments in Swaps (CFA Level 1): Understanding Market Value in Swaps, Risk-Neutral Valuation in Brief, and Credit Value Adjustment (CVA). Key definitions, formulas, and exam tips.
  • Derivative Valuation Adjustments: XVA (CVA, DVA, FVA, KVA)
    Derivative Valuation Adjustments: XVA (CVA, DVA, FVA, KVA) (CFA Level 1): Understanding the XVA Framework, Core Components of XVA, and CVA: Credit Value Adjustment. Key definitions, formulas, and exam tips.
  • Swap Execution Facilities and Post-Trade Transparency
    Swap Execution Facilities and Post-Trade Transparency (CFA Level 1): Rise of Swap Execution Facilities, Why Not All Swaps Trade on SEFs, and Impact on Market Pricing and Liquidity. Key definitions, formulas, and exam tips.
  • Equity Repo Swaps and Stock-Lending Swaps
    Equity Repo Swaps and Stock-Lending Swaps (CFA Level 1): Understanding the Framework of Equity Financing, Equity Repo Swaps: The Basics, and Key Mechanics. Key definitions, formulas, and exam tips.
  • Cost-of-Funds Index Swaps
    Cost-of-Funds Index Swaps (CFA Level 1): Key Concepts and Mechanics, What Is the Cost-of-Funds Index (COFI)?, and COFI in Mortgage Lending. Key definitions, formulas, and exam tips.
• Chapter 10: Pricing and Valuation of Options
  Chapter 10: Pricing and Valuation of Options (CFA Level 1): Key concepts, definitions, and exam tips with practical examples. Use it to reinforce intuition and avoid common pitfalls.
  • Determinants of Option Value
    Determinants of Option Value (CFA Level 1): Payoff Asymmetry, Intrinsic Value and Time Value, and How Intrinsic and Time Value Evolve. Key definitions, formulas, and exam tips.
  • Put–Call Parity and Put–Call Forward Parity
    Put–Call Parity and Put–Call Forward Parity (CFA Level 1): Core Principles of No-Arbitrage, Understanding the Basic Put–Call Parity for European Options, and Breaking It Down. Key definitions, formulas, and exam tips.
  • Binomial Option Pricing Model (One-Period)
    Binomial Option Pricing Model (One-Period) (CFA Level 1): Test Your Knowledge: One-Period Binomial Option Pricing, call option's payoff in an up state, and Which of the following best describes why the. Key definitions, formulas, and exam tips.
  • Risk-Neutral Valuation
    Risk-Neutral Valuation (CFA Level 1): Core Idea of a Risk-Neutral World, Real-World Probability vs. Risk-Neutral Probability, and Arbitrage-Free Pricing and Replication. Key definitions, formulas, and exam tips.
  • Black–Scholes–Merton Model Assumptions
    Black–Scholes–Merton Model Assumptions (CFA Level 1): Key Assumptions of the BSM Model, Frictionless Markets and Continuous Trading, and Underlying Follows Geometric Brownian Motion. Key definitions, formulas, and exam tips.
  • Dividends in Option Pricing
    Dividends in Option Pricing (CFA Level 1): Impact of Dividends on Calls and Puts, Approaches to Modeling Dividends, and Discrete Dividend Approach. Key definitions, formulas, and exam tips.
  • Introduction to the Black–Scholes–Merton Model
    Introduction to the Black–Scholes–Merton Model (CFA Level 1): Roots of the Black–Scholes–Merton Model, Core Formula, and Risk-Neutral Interpretation. Key definitions, formulas, and exam tips.
  • Option Sensitivities (Greeks)
    Option Sensitivities (Greeks) (CFA Level 1): Fundamentals of Option Sensitivities, Delta (∆), and Definition and Interpretation. Key definitions, formulas, and exam tips.
  • Volatility Smiles and the Implied Volatility Surface
    Volatility Smiles and the Implied Volatility Surface (CFA Level 1): Revisiting Implied Volatility, Volatility Skew and Smile, and Shape. Key definitions, formulas, and exam tips.
  • Variance and Volatility Swaps
    Variance and Volatility Swaps (CFA Level 1): Distinguishing Variance and Volatility Swaps, Motivations for Using Variance and Volatility Swaps, and How These Swaps Work. Key definitions, formulas, and exam tips.
  • Monte Carlo Methods for Complex Option Pricing
    Monte Carlo Methods for Complex Option Pricing (CFA Level 1): Why Monte Carlo for Complex Option Pricing?, Key Steps in Monte Carlo Simulation, and Step 1: Model the Underlying Price Dynamics. Key definitions, formulas, and exam tips.
  • Multi-Period Binomial Trees for American Options
    Multi-Period Binomial Trees for American Options (CFA Level 1): Core Concepts and Recap, American-Style vs European-Style, and Multi-Period Binomial Trees. Key definitions, formulas, and exam tips.
  • Finite Difference Methods in Option Pricing
    Finite Difference Methods in Option Pricing (CFA Level 1): Discretizing the Domain and Grid Layout. Exam-focused explanations with key terms and takeaways.
  • Early Exercise Considerations in American-Style Options
    Early Exercise Considerations in American-Style Options (CFA Level 1): Why or Why Not Exercise Early?, American Calls on Non-Dividend-Paying Stocks, and American Calls on Dividend-Paying Stocks. Key definitions, formulas, and exam tips.
  • Static Replication Approaches for Barrier Options
    Static Replication Approaches for Barrier Options (CFA Level 1): Essence of Static Replication, Key Principles, and Constructing the Static Replication Portfolio. Key definitions, formulas, and exam tips.
  • Machine Learning Approaches in Option Pricing
    Machine Learning Approaches in Option Pricing (CFA Level 1): Rationale for Machine Learning in Option Pricing, Supervised Learning Framework, and Data Requirements and Strategies. Key definitions, formulas, and exam tips.
  • Options on Implied Volatility
    Options on Implied Volatility (CFA Level 1): Defining Options on Implied Volatility, Why Focus on Implied Volatility?, and Closer Look at VIX and VIX Options. Key definitions, formulas, and exam tips.
  • Jump-Diffusion Models in Option Pricing
    Jump-Diffusion Models in Option Pricing (CFA Level 1): Conceptual Underpinnings of Jump-Diffusion, Poisson Process for Jumps, and Merton’s Jump-Diffusion Model. Key definitions, formulas, and exam tips.
  • Stochastic Volatility and Heston Model
    Stochastic Volatility and Heston Model (CFA Level 1): Key Distinctions from the Constant Volatility World, Heston Model in Depth, and Mean Reversion in Volatility. Key definitions, formulas, and exam tips.