Notes for Level I CFA® Program
R57 Basics of Derivative Pricing and Valuation
1. IntroductionWatch Video
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?