Derivatives: CFA® Level I

It is 6–9% of the 2027 Level I exam. 25 learning outcomes across 10 learning modules.

270+ practice questions and 11 formula cards on this topic in the app.

Derivative Instrument and Derivative Market Features

• Contrast exchange-traded derivatives with those traded over the counter
• Explain what margin and a clearing house do

Forward Commitment and Contingent Claim Features and Instruments

• Explain what forwards, futures and swaps are
• Set out what credit derivatives are and their main features
• Work out what a call option pays at expiry
• Tell apart an option's payoff and the profit it earns
• Work out what a put option pays at expiry
• Set out the payoffs from a covered call and a protective put

Derivative Benefits, Risks, and Issuer and Investor Uses

• Set out what derivatives offer users and the risks they carry
• Contrast how issuers use derivatives with how investors use them

Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives

• Show how the absence of arbitrage fixes a forward price
• Explain carrying costs and how they shift the forward price

Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities

• Work out what a forward contract is worth before it matures
• Explain how the rate on an interest rate forward contract is fixed

Pricing and Valuation of Futures Contracts

• Contrast futures with forwards on cash flows and counterparty credit risk
• Say why forward and futures prices may not be equal

Pricing and Valuation of Interest Rate and Other Swaps

• Show how an interest rate swap works as a string of forward commitments
• Tell apart what a swap is worth and what it is priced at

Pricing and Valuation of Options

• Explain what an option's moneyness means
• Set out the factors that drive an option's value
• Split an option's price into time value and intrinsic value

Option Replication Using Put–Call Parity

• Use put-call parity to link option prices with the underlying's price
• Work with put-call-forward parity

Valuing a Derivative Using a One-Period Binomial Model

• Price an option with a single-period binomial model
• Explain replication and valuation under risk neutrality