Basics of Derivative Pricing and Valuation (2021 Level I CFA® Exam – Reading 49)

Understand the basics of derivative pricing and valuation for the CFA® Level I Exam in this clear and exam-focused video by Professor James Forjan, PhD, CFA.

You’ll learn:
• How arbitrage, replication, and risk neutrality influence derivative pricing
• The difference between value and price of forwards and futures
• Forward rate agreements and how they differ from futures
• The concept of swaps, and how their value evolves
• Option valuation at expiration, exercise value, and put–call parity
• Introduction to the one-period binomial model

This lesson simplifies complex derivative concepts into easy-to-follow examples so you can understand the math behind pricing, valuation, and risk-free replication strategies.

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Reading 49 – Basics of Derivative Pricing and Valuation
– LOS 49a: explain how the concepts of arbitrage, replication, and risk neutrality are used in pricing derivatives https://bit.ly/2GtZ57R
– LOS 49b: distinguish between value and price of forward and futures contracts https://bit.ly/2TAQeVA
– LOS 49c: explain how the value and price of a forward contract are determined at expiration, during the life of the contract, and at initiation https://bit.ly/2HXGNOH
– LOS 49d: describe monetary and nonmonetary benefits and costs associated with holding the underlying asset and explain how they affect the value and price of a forward contract https://bit.ly/2RKjVlk
– LOS 49e: define a forward rate agreement and describe its uses https://bit.ly/2WNFYvt
– LOS 49f: explain why forward and futures prices differ https://bit.ly/2RKkjAi
– LOS 49g: explain how swap contracts are similar to but different from a series of forward contracts https://bit.ly/2Dd0ZXb
– LOS 49h: distinguish between the value and price of swaps https://bit.ly/2taffLI
– LOS 49i: explain how the value of a European option is determined at expiration https://bit.ly/2DWwarC
– LOS 49j: explain the exercise value, time value, and moneyness of an option https://bit.ly/2SdnmX4
– LOS 49k: identify the factors that determine the value of an option and explain how each factor affects the value of an option https://bit.ly/2Sg8Uxi
– LOS 49l: explain put–call parity for European options https://bit.ly/2tafJ4u
– LOS 49m: explain put–call–forward parity for European options https://bit.ly/2TzfWdj
– LOS 49n: explain how the value of an option is determined using a one-period binomial model https://bit.ly/2t6VoNx
– LOS 49o: explain under which circumstances the values of European and American options differ https://bit.ly/2UIjzO0

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