Derivatives & Finance
Pricing by no-arbitrage, the Greeks, fixed-income sensitivities and portfolio risk — the finance vocabulary interviewers expect you to use fluently.
Lessons · recommended order
- 1No-Arbitrage & ReplicationIf two portfolios produce identical payoffs in every future state, they must have the same price today — the single principle behind all derivatives pricing.Foundations7 min
- 2Forward PricingThe fair forward price is the cost of carrying the underlying asset to delivery, derived purely from no-arbitrage replication.Foundations6 min
- 3Put-Call ParityA European call minus a put with the same strike replicates a forward, forcing a fixed algebraic relationship between call and put prices.Foundations7 min
- 4The One-Period Binomial ModelWith just an up-state and a down-state, replication pins down a unique option price via a risk-neutral probability, no real-world probabilities required.Intermediate9 min
- 5The GreeksThe Greeks measure how an option's value responds to changes in the underlying, time, volatility and rates — the vocabulary of managing an options book.Intermediate8 min
- 6DurationModified duration is the first-order sensitivity of a bond's price to yield changes, converting a yield move directly into an approximate return.Intermediate7 min
- 7Bond ConvexityConvexity is the second-order correction to duration, capturing the curvature of the price-yield relationship that duration alone misses.Intermediate6 min
- 8Portfolio VarianceThe two-asset variance formula shows exactly how correlation between assets determines whether diversification meaningfully reduces risk.Intermediate6 min
- 9HedgingHedging reduces risk by taking an offsetting position sized by beta, correlation, or delta, depending on what type of exposure is being neutralized.Intermediate8 min
- 10Value at Risk (VaR)VaR summarizes downside risk as the loss threshold breached only with a small target probability, but it ignores the severity of losses beyond that threshold.Intermediate7 min