Download PDF Now: https://www.finquiz.com/cfa/level-1/summary/
2025 Prep Packages for the CFA® Program exam offered by FinQuiz Pro (notes, summaries, question bank, mock exams, and formula sheet):
Level I: https://www.finquiz.com/cfa/level-1/
Level II: https://www.finquiz.com/cfa/level-2/
Level III: https://www.finquiz.com/cfa/level-3/
Delve into the foundational approach to derivative valuation with the One-Period Binomial Model in Module 10 of the CFA® Level I 2025 Derivatives series. In this session, you’ll learn how to calculate risk-neutral probabilities, construct up and down price scenarios, and leverage the no-arbitrage principle to determine the fair value of options. Gain insights into option payoffs, hedging strategies, and how the binomial model lays the groundwork for more complex pricing techniques. Tailored for CFA Level 1 candidates, this video provides study tips and effective exam preparation strategies to strengthen your investment analysis expertise—and move you closer to achieving your Chartered Financial Analyst designation.
0:00 – 0:35 | Introduction & Session Overview
Kick off the session with a brief intro to option replication and put–call parity, plus a nod to key Finn Quiz study resources for CFA candidates.
0:35 – 2:06 | What is Put–Call Parity?
Learn the fundamentals: the no‑arbitrage rule that ties together put options, call options, the underlying asset, and the risk‑free bond/interest rate.
2:06 – 3:00 | Protective Put Strategy Explained
Discover how buying a put option (using a Tesla example) protects your stock investment by locking in a minimum sale price.
3:00 – 4:00 | Understanding the Fiduciary Call Strategy
See how a risk‑free bond combined with a call option replicates a protective put’s payoff—illustrating the core concept of put–call parity.
4:00 – 4:50 | Comparing Strategies & Ensuring Market Balance
Understand why these two different strategies yield the same outcome and how that reinforces the no‑arbitrage principle in options pricing.
4:50 – 8:40 | Common Pitfalls & Transition to Replication
A quick note on typical mistakes (e.g., assuming puts and calls are interchangeable) and a smooth segue into the world of replication strategies and synthetic positions.
8:40 – 9:15 | Constructing Synthetic Options: Synthetic Long Call
Learn how to build a synthetic long call by combining a put, stock, and risk‑free bond to mirror the payoff of a standard call option.
9:15 – 10:02 | Deep Dive into Synthetic Position Mechanics
Explore the mechanics behind synthetic options with real‑world examples, illustrating how these positions replicate traditional option payoffs.
10:02 – 10:50 | Put–Call Parity in Corporate Finance
Review how put–call parity principles extend beyond trading to help explain the balance between a company’s debt and equity.
10:50 – 11:02 | Key Takeaways & Recap
Summarize the essential points from the session—from the basics of put–call parity to constructing synthetic positions.
11:02 – 16:14 | Conclusion & Final Insights
Wrap up the session with additional insights, a final recap of the concepts, and a call to action to review Finn Quiz’s Stanley notes, mock exams, and summaries for further CFA exam prep.