Master derivative instruments and pricing models — the foundation for understanding DeFi options, futures, and complex financial products. This module covers the full derivatives lifecycle from instrument features and market structure through to quantitative pricing frameworks, connecting each concept to its decentralized finance counterpart on protocols like Synthetix, dYdX, Opyn, and GMX.
Derivative Instrument and Derivative Market Features Learning Objectives Coverage LO1: Define a derivative and describe basic features of a derivative instrument Core Concept A derivative is a financial instrument that derives its value from the performance of an underlying asset, and it may represe...
Topic 10: Valuing a Derivative Using a One-Period Binomial Model Learning Objectives Coverage LO1: Explain how to value a derivative using a one-period binomial model Core Concept The binomial model values options by assuming the underlying asset can move to only two possible prices over one period.
Forward Commitment and Contingent Claim Features and Instruments Learning Objectives Coverage LO1: Define forward contracts, futures contracts, swaps, options (calls and puts), and credit derivatives and compare their basic characteristics Core Concept Derivatives are classified into two broad famil...
Derivative Benefits, Risks, and Issuer and Investor Uses Learning Objectives Coverage LO1: Describe benefits and risks of derivative instruments Core Concept - Benefits Derivatives provide operational advantages, market efficiency improvements, and risk management capabilities that go beyond what is...
Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives Learning Objectives Coverage LO1: Explain how the concepts of arbitrage and replication are used in pricing derivatives Core Concept Arbitrage and replication form the foundation of derivative pricing by establishing that identical...
Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities Learning Objectives Coverage LO1: Explain how the value and price of a forward contract are determined at initiation, during the life of the contract, and at expiration Core Concept Forward contracts have distin...
Topic 6: Pricing and Valuation of Futures Contracts Learning Objectives Coverage LO1: Compare the value and price of forward and futures contracts Core Concept Futures and forward contracts are similar derivatives but differ fundamentally in their settlement mechanisms and margin requirements.
Topic 7: Pricing and Valuation of Interest Rates and Other Swaps Learning Objectives Coverage LO1: Describe how swap contracts are similar to but different from a series of forward contracts Core Concept Swaps are derivatives that exchange cash flows over multiple periods using a single fixed rate, ...
Topic 8: Pricing and Valuation of Options Learning Objectives Coverage LO1: Explain the exercise value, moneyness, and time value of an option Core Concept Options have two components of value: exercise (intrinsic) value and time value.
Topic 9: Option Replication Using Put-Call Parity Learning Objectives Coverage LO1: Explain put-call parity for European options Core Concept Put-call parity is a fundamental no-arbitrage relationship that links the prices of European put and call options with the same strike price and expiration da...