CFA Level 1 Derivatives Study Guide
Master forwards, futures, options, and swaps with 108+ practice questions, payoff diagrams, and proven strategies.
Derivatives Topic Breakdown
Key Derivatives Concepts
Master these fundamental concepts that appear regularly on the CFA Level 1 exam
Forward Pricing
HighUnderstanding forward contract pricing using cost of carry model
Option Payoffs
HighCalculating profit/loss for call and put options at expiration
Put-Call Parity
MediumThe fundamental relationship between call, put, and forward prices
Binomial Pricing
MediumValuing options using one and two-step binomial models
How to Ace CFA Level 1 Derivatives
Start with Forwards, Then Options
Forwards are simpler - master forward pricing first using cost of carry. Then move to options where the payoff diagrams make concepts clearer.
Practice Payoff Diagrams
Draw payoff diagrams for every option strategy. Being able to sketch calls, puts, spreads, and straddles instantly is essential for exam success.
Master Put-Call Parity
Put-call parity is the most important concept in derivatives. It connects calls, puts, forwards, and underlying asset prices. Memorize: C - P = S - PV(K).
Understand Binomial Model Intuition
Don't just memorize the binomial formula - understand how hedging creates a riskless portfolio. This foundation makes pricing intuitive.
Start Practicing Derivatives Questions
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Derivatives FAQs
How much of the CFA Level 1 exam is Derivatives?
Derivatives represents 5-8% of the CFA Level 1 exam, translating to approximately 9-14 questions out of 180 total questions. While smaller than some topics, it provides essential foundation for Level 2.
What is the most difficult part of Derivatives?
Most candidates find option pricing (binomial model) and put-call parity the most challenging. Focus on understanding the logic rather than memorizing formulas.
How do I master Derivatives for CFA Level 1?
Start with forwards and futures (simpler), then move to options. Practice payoff diagrams until you can draw them instantly. Understand put-call parity - it connects everything.