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Master the fundamental concepts of pricing and valuing forward commitments in this comprehensive video lesson designed for Level II CFA® exam preparation. Explore the carry arbitrage model both with and without underlying cash flows, establishing the theoretical foundation for derivative pricing. Learn to price and calculate no-arbitrage values for equity forwards and futures, understanding how these instruments derive their value from underlying stock positions. Delve into interest rate forwards and futures pricing mechanisms, examining how these derivatives reflect expectations about future interest rate movements. Study fixed-income forward and futures pricing methodologies, including the complexities introduced by bond characteristics such as duration and convexity. Understand interest rate swap pricing fundamentals and calculate their no-arbitrage values, covering the mechanics of fixed-for-floating rate exchanges. Examine currency swap pricing principles and valuation techniques, learning how exchange rate expectations and interest rate differentials affect these instruments. Conclude with equity swap pricing and valuation, understanding how these derivatives allow exposure to equity returns without direct stock ownership. Each learning outcome statement is thoroughly covered with practical calculation examples and interpretation guidance essential for CFA Level II derivatives mastery.
