What CFA Level 1 Derivatives actually tests
Derivatives is 5-8% of the Level 1 exam:
| Area | What it covers |
|---|---|
| Derivative Markets | Purposes, exchange-traded vs. OTC, clearing, settlement |
| Forward Contracts | Pricing, valuation, FRAs, currency forwards, equity forwards |
| Futures | Marking to market, margin, basis, cost of carry, contango, backwardation |
| Options | Calls, puts, moneyness, exercise styles, payoffs, put-call parity, binomial model |
| Swaps | Interest rate, currency, equity swaps |
| Risk Management | Hedging with futures and options, delta hedging concept |
Why put-call parity is worth memorizing cold
Put-call parity isn't just a formula to plug into — it's a no-arbitrage relationship, and CFA questions frequently test it in the "solve for the missing piece" direction: given three of the four values (call, put, stock, risk-free bond), find the fourth. Knowing the relationship well enough to rearrange it under time pressure is worth more than memorizing one fixed form of it.
Sample question: Put-Call Parity
A stock trades at $100. A 1-year European call option with a $100 strike costs $8. The risk-free rate is 5% (annual, simple interest). According to put-call parity, what should a 1-year European put with the same strike and expiry cost?
Put-call parity: C + PV(X) = P + S₀, so P = C − S₀ + PV(X) = 8 − 100 + (100 / 1.05) = 8 − 100 + 95.24 = $3.24. The put is cheaper than the call here because the stock price ($100) is above the present value of the strike ($95.24) — the call is more likely to finish in the money, so it carries more of the option premium.
The 2026 Derivatives syllabus, module by module
Pinnacle runs on a syllabus graph — named modules with explicit prerequisites, each one mapped against CFA Institute's official 2026 Level I topic outline. It is the same map the free diagnostic reasons over, not a marketing summary of it. These are the ten confirmed Derivatives modules, and what each one covers:
Derivative Instruments & Markets
Exchange-traded versus OTC markets, the main contract types, and the purposes — and criticisms — of derivatives.
Derivative Benefits, Risks & Uses
Why derivatives are used and what they cost: the benefits and risks of derivative instruments, and the distinct purposes issuers and investors put them to.
Forward Commitments
Forwards, futures and swaps as firm obligations, and their payoff structures.
Arbitrage-Free Pricing
The law of one price, cost of carry, and pricing by replication.
Futures Markets
Marking to market, margin, basis, and convergence.
Swaps
Reading an interest rate swap as a series of forwards, and how swaps are valued.
Options — Contingent Claims
Calls and puts, moneyness, and the split between intrinsic and time value.
Option Payoffs & Strategies
Payoff and profit diagrams, covered calls, and protective puts.
Put-Call Parity
The fiduciary-call / protective-put equivalence and the synthetic positions it lets you build.
Binomial Option Valuation
One- and two-period binomial trees, and risk-neutral probabilities.
Every practice question in the bank is tagged to one of these modules — which is how the diagnostic can name the specific concept underneath a wrong answer, not just the topic area it sat in.
Module names follow CFA Institute's published 2026 Level I topic outline, referenced for accuracy. Pinnacle is an independent adaptive learning platform. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute. Pinnacle is not affiliated with, endorsed by, or connected to that organisation.