Forward Rate Agreements and their Uses
A forward rate agreement (FRA) is ideal for an investor or company who... Read More
Study Session 16
Reading 48 – Derivative Markets and Instruments
– LOS 48a: define a derivative and distinguish between exchange-traded and over-the-counter derivatives
– LOS 48b: contrast forward commitments with contingent claims
– LOS 48c: define forward contracts, futures contracts, options (calls and puts), swaps, and credit derivatives and compare their basic characteristics
– LOS 48d: determine the value at expiration and profit from a long or a short position in a call or put option
– LOS 48e: describe purposes of, and controversies related to derivative markets
– LOS 48f: explain arbitrage and the role it plays in determining prices and promoting market efficiency
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
– LOS 49b: distinguish between value and price of forward and futures contracts
– LOS 49c: calculate a forward price of an asset with zero, positive, or negative net cost of carry;
– LOS 49d: explain how the value and price of a forward contract are determined at expiration, during the life of the contract, and at initiation
– LOS 49e: 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
– LOS 49f: define a forward rate agreement and describe its uses
– LOS 49g: explain why forward and futures prices differ
– LOS 49h: explain how swap contracts are similar to but different from a series of forward contracts
– LOS 49i: distinguish between the value and price of swaps
– LOS 49j: explain how the value of a European option is determined at expiration
– LOS 49j: explain the exercise value, time value, and moneyness of an option
– LOS 49k: identify the factors that determine the value of an option and explain how each factor affects the value of an option
– LOS 49l: explain put–call parity for European options
– LOS 49m: explain put–call–forward parity for European options
– LOS 49n: explain how the value of an option is determined using a one-period binomial model
– LOS 49o: explain under which circumstances the values of European and American options differ
Past LOS (until 2017) – Risk Management Applications of Option Strategies
– determine the value at expiration, the profit, maximum profit, maximum loss, breakeven underlying price at expiration, and payoff graph of the strategies of buying and selling calls and puts and determine the potential outcomes for investors using these strategies
– determine the value at expiration, profit, maximum profit, maximum loss, breakeven underlying price at expiration, and payoff graph of a covered call strategy and a protective put strategy, and explain the risk management application of each strategy
2022 Curriculum
Reading 45: Derivative Markets and Instruments
– LOS 45a: define a derivative and distinguish between exchange-traded and over-the-counter derivatives
– LOS 45b: contrast forward commitments with contingent claims
– LOS 45c: define forward contracts, futures contracts, options (calls and puts), swaps, and credit derivatives and compare their basic characteristics
– LOS 45d: determine the value at expiration and profit from a long or a short position in a call or put option
– LOS 45e: describe purposes of, and controversies related to derivative markets
– LOS 45f: explain arbitrage and the role it plays in determining prices and promoting market efficiency
Reading 46: Basics of Derivative Pricing and Valuation
-LOS 46b: explain the difference between value and price of forward and futures contracts;
-LOS 46c: calculate a forward price of an asset with zero, positive, or negative net cost of carry;
-LOS 46f: define a forward rate agreement and describe its uses;
-LOS 46g: explain why forward and futures prices differ;
-LOS 46i: explain the difference between value and price of swaps;
-LOS 46j: explain the exercise value, time value, and moneyness of an option;
-LOS 46l: explain put–call parity for European options;
-LOS 46m: explain put–call–forward parity for European options;
-LOS 46n: explain how the value of an option is determined using a one-period binomial model;
-LOS 46o: explain under which circumstances the values of European and American options differ.
2023/24 Curriculum
(Reading 48) Module 1: Derivative Instrument and Derivative Market Features
LOS a: define a derivative and describe basic features of a derivative instrument
LOS b: describe the basic features of derivative markets, and contrast over-the-counter and exchange-traded derivative markets
(Reading 49) Module 2: Forward Commitment and Contingent Claim Features and Instruments
LOS a: define forward contracts, futures contracts, swaps, options (calls and puts), and credit derivatives and compare their basic characteristics
LOS b: determine the value at expiration and profit from a long or a short position in a call or put option
LOS c: contrast forward commitments with contingent claims
(Reading 50) Module 3: Derivative Benefits, Risks, and Issuer and Investor Uses
LOS a: describe the benefits and risks of derivative instruments
LOS b: compare the use of derivatives among issuers and investors
(Reading 51) Module 4: Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
LOS a: explain how the concepts of arbitrage and replication are used in pricing derivatives
LOS b: explain the difference between the spot and expected future price of an underlying and the cost of carry associated with holding the underlying asset
(Reading 52) Module 5: Pricing and Valuation of Forward Contracts and For An Underlying with Varying Maturities
LOS a: Explain how the value and price of a forward contract are determined at initiation, during the life of the contract, and at expiration
LOS b: Explain how forward rates are determined for an underlying with a term structure and describe their uses
(Reading 53) Module 6: Pricing and Valuation of Futures Contracts
LOS a: compare the value and price of forward and futures contracts
LOS b: explain why forward and futures prices differ
(Reading 54) Module 7: Pricing and Valuation of Interest Rate and Other Swaps
LOS a: describe how swap contracts are similar to but different from a series of forward contracts
LOS b: contrast the value and price of swaps
(Reading 55) Module 8: Pricing and Valuation of Options
LOS a: Explain the exercise value, moneyness, and time value of an option
LOS b: Contrast the use of arbitrage and replication concepts in pricing forward commitments and contingent claims
LOS c: Identify the factors that determine the value of an option and describe how each factor affects the value of an option
(Reading 56) Module 9: Option Replication Using Put-Call Parity
LOS a: explain put–call parity for European options
LOS b: explain put–call forward parity for European options
(Reading 57) Module 10: Valuing a Derivative Using a One-Period Binomial Model
LOS a: explain how to value a derivative using a one-period binomial model
LOS b: describe the concept of risk neutrality in derivatives pricing
Sergio Torrico
2021-07-23
Excelente para el FRM 2
Escribo esta revisión en español para los hispanohablantes, soy de Bolivia, y utilicé
AnalystPrep para dudas y consultas sobre mi preparación para el FRM nivel 2 (lo tomé una sola vez y aprobé muy bien), siempre tuve un soporte claro, directo y rápido, el material sale rápido cuando hay cambios en el temario de GARP, y los ejercicios y exámenes son muy útiles para practicar.
diana
2021-07-17
So helpful. I have been using the videos to prepare for the CFA Level II exam. The videos signpost the reading contents, explain the concepts and provide additional context for specific concepts.
The fun light-hearted analogies are also a welcome break to some very dry content.
I usually watch the videos before going into more in-depth reading and they are a good way to avoid being overwhelmed by the sheer volume of content when you look at the readings.
Kriti Dhawan
2021-07-16
A great curriculum provider. James sir explains the concept so well that rather than memorising it, you tend to intuitively understand and absorb them.
Thank you ! Grateful I saw this at the right time for my CFA prep.
nikhil kumar
2021-06-28
Very well explained and gives a great insight about topics in a very short time. Glad to have found Professor Forjan's lectures.
Marwan
2021-06-22
Great support throughout the course by the team, did not feel neglected
Benjamin anonymous
2021-05-10
I loved using AnalystPrep for FRM.
QBank is huge, videos are great.
Would recommend to a friend
Daniel Glyn
2021-03-24
I have finished my FRM1 thanks to AnalystPrep. And now using AnalystPrep for my FRM2 preparation. Professor Forjan is brilliant. He gives such good explanations and analogies. And more than anything makes learning fun. A big thank you to Analystprep and Professor Forjan. 5 stars all the way!
michael walshe
2021-03-18
Professor James' videos are excellent for understanding the underlying theories behind financial engineering / financial analysis. The AnalystPrep videos were better than any of the others that I searched through on YouTube for providing a clear explanation of some concepts, such as Portfolio theory, CAPM, and Arbitrage Pricing theory. Watching these cleared up many of the unclarities I had in my head. Highly recommended.