Introduction to Derivatives

CFA Level 1 - Derivatives

Given their reputation as exotic, highly complex and specialized financial instruments, derivatives may be a somewhat intimidating topic. In reality, they have been in existence in simple forms for decades and the concept behind them is not difficult to understand

For Level I of the CFA program, the majority of the learning outcome statements concern definitions or descriptions of the various types of securities and strategies that are currently in the marketplace, such as options, futures and swaps.

Remember that the CFA Level 1 exam is multiple choice. The calculations and diagrams that you will be required to know are fairly basic. Any time that you are asked to make a calculation concerning a derivative structure or trade, draw a diagram first. That way, you can visualize where the payments are going as well as the type of payments that will be made to each counterparty before following through with the calculation. 

The following tutorials will prime you for the topics discussed in this section:

• Futures Fundamentals
• Options Basics

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