Forward commitments, contingent claims, and payoff interpretation for Level I derivatives.
Derivatives at Level I is mostly about payoff logic and pricing relationships. The exam wants you to know what position a trader actually holds, what risk is being transferred, and how no-arbitrage anchors the value relationship.
That is why this chapter is grouped into a few substantive lessons instead of one page per reading. The official curriculum still defines the coverage boundary, but the public structure is organized around how Level I candidates actually solve derivatives questions: classify the contract, use arbitrage to price forwards, separate futures and swaps mechanics, then handle option payoffs and parity logic.
| Lesson | Official module coverage boundary | What to focus on |
|---|---|---|
| Derivative Markets, Payoff Types, and Uses | Derivative Instrument and Derivative Market Features; Forward Commitment and Contingent Claim Features and Instruments; Derivative Benefits, Risks, and Issuer and Investor Uses | Contract classification, OTC versus exchange-traded markets, forward commitments versus contingent claims, and why issuers or investors use derivatives at all. |
| Arbitrage, Replication, and Forward Pricing | Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives; Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities | How no-arbitrage and replication determine forward prices and values, why carry matters, and how forward-rate logic fits into derivatives pricing. |
| Futures, Swaps, and Rate Contract Valuation | Pricing and Valuation of Futures Contracts; Pricing and Valuation of Interest Rates and Other Swaps | How futures differ from forwards because of marking-to-market, and how swaps behave as a series of forward-like exchanges whose value changes when market rates move. |
| Options, Put-Call Parity, and Binomial Pricing | Pricing and Valuation of Options; Option Replication Using Put–Call Parity | Option payoff and profit logic, moneyness and time value, option value drivers, and the no-arbitrage links among calls, puts, stock, and cash. |