Chapter 1: Introduction to Derivatives

In this section

• 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.