Contingent Claims: Option Valuation and Risk Management
Free CFA Level II lesson in Derivatives. 21 min read, ~3,123 words.
Put-call parity: Call + PV(K) = Put + Stock. The single most-tested derivatives formula. BSM prices the cost of a continuously hedged replicating portfolio. sigma is the only input you cannot observe. Five Greeks: delta (direction), gamma (curvature), vega (volatility), theta (time decay), rho (rate). Every Greek flips sign when...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- contingent claims
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