Derivatives Workbook

Derivatives Workbook offers practical instruction for students and professionals seeking additional guidance on working with derivatives instruments. Created by CFA Institute as a companion to the comprehensive Derivatives text, this book helps you practice using what you've learned through problems that mimic real-world scenarios. Working with different derivatives instruments helps you gauge how well you understand the instruments' characteristics, both shared and unique; this intimate knowledge is essential to effective portfolio management, and this book provides an expertly-designed, low-stakes environment ideal for self-assessment.

Derivatives—financial instruments that derive their value from the value of some underlying asset—have become increasingly important for effective risk management, and fundamental for creating synthetic exposures to asset classes. Whether you're a student aspiring to a career in finance, or a professional seeking a stronger skill set, this workbook is an invaluable tool for simulating the use of derivatives in everyday practice.

• Work more effectively with different types of derivative instruments
• Master the valuation of forward, future, options, and swap contracts
• Utilize options for risk management and portfolio optimization
• Explore the practical aspects of working within the derivatives markets

As in other security markets, arbitrage and market efficiency play a critical role in derivative pricing. The experts at CFA Institute recognize the need for realistic, practical derivatives training that translates well into real-world practice; this workbook fills the gap with a wealth of practice problems that have value to both aspiring and practicing investment professionals. Derivatives Workbook provides authoritative training and comprehensive practical instruction on derivative instruments, their markets, and valuation.

WENDY L. PIRIE, PHD, CFA, is Director, Curriculum Projects, in the Education Division at CFA Institute. She holds a PhD in accounting and finance from Queen's University at Kingston, Ontario, and MBAs from the Universities of Toronto and Calgary. She is a member of CFA Institute, New York Society of Security Analysts, and CFA Society Chicago.

PA RT I Learning Objectives, Summary Overview, and Problems

CHAPTER 1 Derivative Markets and Instruments 3

Learning Outcomes 3

Summary Overview 3

Problems 5

CHAPTER 2 Basics of Derivatives Pricing and Valuation 7

Learning Outcomes 7

Summary Overview 8

Problems 9

CHAPTER 3 Pricing and Valuation of Forward Commitments 13

Learning Outcomes 13

Summary Overview 13

Problems 14

CHAPTER 4 Valuation of Contingent Claims 21

Learning Outcomes 21

Summary Overview 22

Problems 24

CHAPTER 5 Derivatives Strategies 31

Learning Outcomes 31

Summary Overview 31

Problems 32

CHAPTER 6 Risk Management 35

Learning Outcomes 35

Summary Overview 36

Problems 38

CHAPTER 7 Risk Management Applications of Forward and Futures Strategies 47

Learning Outcomes 47

Summary Overview 47

Problems 49

CHAPTER 8 Risk Management Applications of Option Strategies 53

Learning Outcomes 53

Summary Overview 53

Problems 56

CHAPTER 9 Risk Management Applications of Swap Strategies 61

Learning Outcomes 61

Summary Overview 61

Problems 64

PART II Solutions

CHAPTER 1 Derivative Markets and Instruments 75

Solutions 75

CHAPTER 2 Basics of Derivatives Pricing and Valuation 79

Solutions 79

CHAPTER 3 Pricing and Valuation of Forward Commitments 83

Solutions 83

CHAPTER 4 Valuation of Contingent Claims 89

Solutions 89

CHAPTER 5 Derivatives Strategies 93

Solutions 93

CHAPTER 6 Risk Management 95

Solutions 95

CHAPTER 7 Risk Management Applications of Forward and Futures Strategies 101

Solutions 101

CHAPTER 8 Risk Management Applications of Option Strategies 105

Solutions 105

CHAPTER 9 Risk Management Applications of Swap Strategies 111

Solutions 111

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