Updated for the 2026-2027 CFA® Level I curriculum.
CFA Level I derivatives cover the contracts, markets, pricing relationships, and valuation tools used to transfer financial risk. These 22 study notes follow the 2026 syllabus from basic instrument features through forwards, futures, swaps, options, put-call parity, and the one-period binomial model.
Use this hub to move through the topic in curriculum order. Each note gives you a focused explanation, key takeaways, common exam traps, and an original practice question, so you can review one learning outcome at a time.
Quick Answer
The CFA Level I derivatives topic teaches you how derivative contracts work and how no-arbitrage relationships determine their prices and values. You need to distinguish forwards, futures, swaps, and options; understand their uses and risks; price and value key contracts; apply put-call parity; and use a one-period binomial model. The current official exam weight for Derivatives and Risk Management is 6-9%.
Key Takeaways About CFA Level I Derivatives
Derivatives get their value from an underlying asset, rate, index, or event.
Forwards, futures, and swaps are forward commitments. Options are contingent claims.
Pricing sets the fair contract terms at inception. Valuation measures what an existing position is worth later.
No-arbitrage and replication connect a derivative price to the underlying asset and financing costs.
Forward and futures prices can differ because futures gains and losses are settled daily.
Option questions test payoff, profit, moneyness, value drivers, parity relationships, and binomial valuation.
CFA Level I Derivatives Topics and Syllabus
The 2026 CFA Level I derivatives syllabus contains ten official readings across pages 23-24 of the topic outlines. Together, they move from instrument definitions to pricing and valuation. The current Level I exam combines this material under Derivatives and Risk Management, with an official topic weight of 6-9%.
Official references: CFA Institute's Level I exam overview and 2026 Level I Topic Outlines.
Derivative Instrument and Derivative Market Features
Forward Commitment and Contingent Claim Features and Instruments
Derivative Benefits, Risks, and Issuer and Investor Uses
Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities
Pricing and Valuation of Futures Contracts
Pricing and Valuation of Interest Rates and Other Swaps
Pricing and Valuation of Options
Option Replication Using Put-Call Parity
Valuing a Derivative Using a One-Period Binomial Model
CFA Level I Derivatives Notes
Start with the foundations if the topic is new to you. If you are reviewing, jump to the contract type or pricing relationship that needs work. The sequence below keeps related ideas together and follows the learning path from definitions to valuation.
1. Derivative Foundations and Market Structure
Defining a Derivative and Basic Instrument Features. Identify the underlying, counterparties, maturity, settlement method, and payoff logic that make a contract a derivative.
Derivative Markets: Exchange-Traded vs OTC. Compare standardization, clearing, liquidity, transparency, customization, and counterparty risk across the two market structures.
Types of Derivative Contracts and Their Basic Characteristics. Review forwards, futures, swaps, calls, puts, and credit derivatives, including the obligation created by each contract.
Call and Put Option Payoffs and Profits. Calculate payoff, profit, maximum gain or loss, and breakeven for long and short calls and puts.
Forward Commitments vs Contingent Claims. Connect bilateral obligations to symmetric payoffs and one-sided rights to asymmetric payoffs.
Benefits and Risks of Derivatives. Balance risk transfer, efficient exposure, price discovery, and leverage against counterparty, liquidity, basis, operational, and legal risks.
Derivative Uses by Issuers and Investors. See how issuers hedge business and financing exposures while investors manage portfolio risk and desired market exposure.
2. Arbitrage, Cost of Carry, Forwards, and Futures
Arbitrage and Replication in Derivatives Pricing. Use equivalent payoffs and no-arbitrage logic to understand why two positions with the same future cash flows must have the same value today.
Spot Price, Expected Future Price, and Cost of Carry. Separate the no-arbitrage forward price from a market forecast and account for financing costs, storage costs, income, and convenience benefits.
Forward Contract Pricing and Valuation. Set the fair forward price at inception and calculate the value of an existing long or short forward before and at expiration.
Interest Rate Forward Contracts and Forward Rates. Link spot rates across maturities and solve for the forward rate implied by no-arbitrage compounding.
Forward vs Futures Contract Price and Value. Compare settlement, margin, counterparty exposure, price, and value for forward and futures positions.
Why Forward and Futures Prices Differ. Explain how daily settlement and the relationship between interest rates and the underlying price can make futures prices differ from forward prices.
3. Swaps
Swaps as a Series of Forward Contracts. View a swap as a set of forward-like exchanges while recognizing the differences created by netting, payment dates, and contract structure.
Swap Price and Value. Distinguish the fixed rate or other contract term set at inception from the changing market value of the swap after rates move.
4. Options, Put-Call Parity, and Binomial Valuation
Option Exercise Value, Moneyness, and Time Value. Calculate exercise value, classify moneyness, and separate an option price into exercise value and time value.
Arbitrage and Replication in Option Pricing. Build a replicating portfolio with the underlying and risk-free borrowing or lending to find an option value.
Factors Affecting Option Value. Track how the underlying price, strike, time, volatility, risk-free rate, and income affect call and put values.
Put-Call Parity for European Options. Apply the parity equation, create synthetic positions, and identify a pricing inconsistency that permits arbitrage.
Put-Call Forward Parity for European Options. Connect European option prices to the forward price when the spot price is not the most convenient input.
One-Period Binomial Model for Derivative Valuation. Build a two-state price tree and value a derivative with either replication or risk-neutral probabilities.
Risk Neutrality in Derivatives Pricing. Use risk-neutral probabilities as no-arbitrage pricing inputs without treating them as real-world forecasts.
How to Study CFA Level I Derivatives
Derivatives becomes easier when you learn the contracts before the formulas. Use the notes in order on your first pass, then return to the calculations and relationships that cost you time in practice.
Build the vocabulary first. Know the underlying, long and short positions, maturity, settlement, payoff, price, and value.
Classify the contract. Decide whether it is a forward commitment or contingent claim, then identify the obligations on each side.
Learn the pricing logic. Connect no-arbitrage, replication, and cost of carry before memorizing individual formulas.
Separate price from value. A contract can have a fair price at inception and a positive or negative value later.
Practise options in layers. Start with payoff and profit, then moneyness and value drivers, then parity and binomial valuation.
Review your errors by concept. Rework the note linked to the mistake instead of rereading the entire topic.
What Does CFA Level I Test in Derivatives?
Most questions ask you to identify a contract, compare two structures, calculate a price or value, or interpret a no-arbitrage relationship. Strong preparation means you can move between the contract terms, the formula, and the economic meaning of the answer.
Definitions and classifications for forwards, futures, swaps, options, and credit derivatives
Long and short option payoff and profit at expiration
Benefits, risks, and uses of derivatives for issuers and investors
Spot, forward, and expected future prices, including cost-of-carry inputs
Forward rates and the pricing and valuation of forwards, futures, and swaps
Option moneyness, time value, value drivers, replication, and put-call parity
One-period binomial valuation and the meaning of risk-neutral probabilities
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FAQs About CFA Level I Derivatives
How much of CFA Level I is Derivatives?
CFA Institute currently assigns Derivatives and Risk Management a 6-9% exam weight at Level I. The exact number of questions can vary within that range, so use the official topic weights for planning and cover every learning outcome.
What topics are covered in CFA Level I derivatives?
The topic covers derivative instruments and markets, forwards, futures, swaps, options, benefits and risks, arbitrage and replication, cost of carry, pricing and valuation, put-call parity, and one-period binomial valuation.
Does CFA Level I include options, forwards, futures, and swaps?
Yes. You need to compare their basic features and obligations, then apply the Level I pricing and valuation relationships assigned to each contract type.
Are CFA Level I derivatives difficult?
The formulas can feel disconnected if you start with memorization. The topic is more manageable when you first classify the contract, identify its payoff, and connect the formula to no-arbitrage or replication.
Explore More CFA Level I Study Notes
Move to another Level I topic or return to the full study-note library when you are ready to continue your review.