Notes for Level I CFA® Program

R57 Basics of Derivative Pricing and Valuation

1. IntroductionWatch Video Play


The major questions addressed in this reading are:

  • How does the pricing of the underlying asset affect the pricing of derivatives?
  • How derivatives are priced using the principle of arbitrage?
  • How are the prices and values of forward contracts determined?
  • How are futures contracts priced differently from forward contracts?
  • How are the prices and values of swaps determined?
  • How are the prices and values of European options determined?
  • How does American option pricing differ from European option pricing?