CFA Level 2: Derivatives Part 1 – Introduction
Welcome to derivatives. This is the first of two modules on derivatives, covering forward and futures contracts. Candidates will need to know:
- The similarities (such as pricing) between forwards and futures;
- The differences (such as value) between forwards and futures;
- How to price and value forwards and futures; and
- Basic the characteristics of forwards and futures.
When approaching derivatives, it is important that the candidate understand both the formulas as well as the concepts behind them.
Forwards and futures are a good way to wade into derivatives, as the material gets more complex in session two. Pricing any type of forward or future is done with the same base formula, but cash flows may vary by underlying asset. Never forget that forwards accumulate positive or negative value, but futures are reset to a value of zero every day. Lastly, candidates must understand the qualitative differences between futures and forwards.
Candidates can reasonably expect two item sets (twelve questions), drawn from both derivatives sessions.
This module aligns with Study Session 16 material in the Level II CFA Program Curriculum ©.
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- CFA Level 2: Derivatives Part 1 – Introduction
- What are Forward Contracts?
- Equity Forward Contracts
- Fixed Income Forward Contracts
- Currency Forward Contracts
- Forward Rate Agreements (FRA)
- Credit Risk and Forward Contracts
- Introduction to Futures Contracts
- Futures: Convergence of Spot and Futures Prices at Expiration
- Futures Prices vs. Forward Prices
- Contago and Backwardation
- Pricing Stock Index Futures
- Pricing Interest Rate/Treasury Bond Futures
- Pricing Currency Futures
- Eurodollar Futures