- CFA Exams
- Dec. 2020 Level 2
- Study Session 14. Derivatives
- Reading 38. Valuation of Contingent Claims
Reading 38. Valuation of Contingent Claims
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Learning Outcome Statements
| Reading 38. Valuation of Contingent Claims | |
|---|---|
| 1. One-Period Binomial Model a. describe and interpret the binomial option valuation model and its component terms; | |
| 2. Two-Period Binomial Model b. calculate the no-arbitrage values of European and American options using a two-period binomial model; c. identify an arbitrage opportunity involving options and describe the related arbitrage; f. describe how the value of a European option can be analyzed as the present value of the option's expected payoff at expiration; | |
| 3. Interest Rate Options d. describe how interest rate options are valued using a two-period binomial model; e. calculate and interpret the value of an interest rate option using a two-period binomial model; | |
| 4. Black-Scholes-Merton Option Valuation Model g. identify assumptions of the Black-Scholes-Merton option valuation model; h. interpret the components of the Black-Scholes-Merton model as applied to call options in terms of a leveraged position in the underlying; i. describe how the Black-Scholes-Merton model is used to value European options on equities and currencies; | |
| 5. Black Option Valuation Model j. describe how the Black model is used to value European options on futures; k. describe how the Black model is used to value European interest rate options and European swaptions; | |
| 6. Option Greeks and Implied Volatility l. interpret each of the option Greeks; m. describe how a delta hedge is executed; n. describe the role of gamma risk in options trading; o. define implied volatility and explain how it is used in options trading. |