CISI Derivatives (CISI) study plan
CISI Derivatives · Give each week a clear focus.
8 weeks · About 6 hours per week
Derivatives fundamentals and market structure
Map the four domains against the exam weighting and rank your own weak areas before studying any detail
Define every core derivative term (underlying, spot, forward, futures, option, swap, premium, margin, clearing) in your own words without notes
Explain the economic purpose of derivatives for hedging, speculation and arbitrage, giving one concrete example of each
Distinguish exchange-traded from OTC markets and describe the roles of broker, clearing house and central counterparty
Summarise how margin, mark-to-market and collateral protect a clearing house from counterparty default
Your checkpoint
A one-page glossary of 25 core terms plus a written note on exchange-traded versus OTC structure, self-tested by covering definitions and recalling them
Derivatives fundamentals and market structure & Futures and forwards
Describe the mechanics of a forward contract and calculate its payoff at expiry for both long and short positions
Derive the fair forward price from spot, interest rate and time to maturity, and explain why dividends or storage costs change it
Explain how futures differ from forwards in margining, standardisation and counterparty risk
Identify the main futures contract types (equity index, interest rate, currency, commodity) and their settlement conventions
Interpret contango and backwardation and explain what each implies about carry and convenience yield
Your checkpoint
Ten forward and futures pricing and payoff calculations worked fully by hand, with a short note explaining each answer and the common errors to avoid
Futures and forwards
Explain the daily variation margin process and calculate a margin call from a sequence of settlement prices
Distinguish initial margin, maintenance margin and variation margin, and describe what happens on default
Describe the role of the clearing house and how novation transfers counterparty risk
Explain basis risk and calculate the effective hedge outcome when basis moves against the hedger
Compare minimum-variance and naive hedge ratios and state when each is appropriate
Your checkpoint
A worked hedging case study: a producer hedges a future sale with futures, showing margin flows, basis at close-out and the net realised price versus the unhedged outcome
Futures and forwards & Options
Calculate intrinsic and time value for calls and puts across a range of strike and underlying prices
State and apply put-call parity to identify arbitrage when the relationship is violated
Explain the determinants of option premium (underlying price, strike, volatility, time, rate, dividends) and the direction of each effect
Describe the payoff and profit profiles of the four basic option positions and draw them from memory
Explain the difference between European and American exercise and why early exercise can be rational for a dividend-paying call
Your checkpoint
A payoff and profit diagram set for long call, short call, long put and short put, each annotated with breakeven, maximum gain and maximum loss, plus five put-call parity checks
Options
Interpret the five main Greeks and explain how each behaves as time to expiry and moneyness change
Apply delta to estimate position exposure and construct a simple delta-neutral hedge
Explain implied versus historical volatility and describe how volatility skew and term structure arise
Combine options into spreads (bull call, bear put, straddle, strangle) and state the market view each expresses
Explain how covered calls and protective puts change the risk profile of an underlying holding
Your checkpoint
A strategy table of six option strategies listing construction, market view, maximum gain, maximum loss, breakeven and net Greeks, written without reference material
Options & Swaps and risk management
Explain the structure of an interest rate swap and calculate the net payment for both fixed and floating payers
Describe how a plain vanilla swap can be decomposed into a series of forwards or a pair of bonds
Explain the role of swaps in converting fixed to floating exposure and in managing duration
Describe currency swaps and how they combine interest rate and exchange rate risk
Identify the main swap risks (market, credit, basis, settlement) and the mitigants used in practice
Your checkpoint
A worked interest rate swap valuation across three reset periods, showing each counterparty's cash flow, plus a short written comparison of swap versus futures hedging
Swaps and risk management
Explain how futures, options and swaps are used to hedge equity, interest rate and currency exposure, with a worked example of each
Distinguish hedging, speculation and arbitrage by objective, risk transfer and expected payoff
Describe credit risk, market risk, liquidity risk and operational risk in a derivatives context and identify one control for each
Explain counterparty credit risk mitigation: collateralisation, netting, central clearing and credit limits
Outline the regulatory framework for derivatives, including clearing obligations, trade reporting and margin requirements for uncleared trades
Your checkpoint
A risk register covering six derivative risks with trigger, impact, mitigation and monitoring metric for each, plus a one-page summary of the clearing and reporting obligations a firm faces
Derivatives fundamentals and market structure & Futures and forwards & Options & Swaps and risk management
Recalculate your weakest topics from weeks 1 to 7 and close every gap flagged in earlier self-tests
Complete a full-length timed mock under exam conditions and score it by domain
Classify every mock error as knowledge gap, calculation slip or misread question, and fix the top three causes
Rehearse definitions, formulas and strategy summaries from memory under time pressure
Confirm exam-day logistics and build a one-page formula and definition sheet to review in the final 48 hours
Your checkpoint
Two timed mock papers scored by domain with a written error log, and a final one-page revision sheet you can reproduce from memory
Milestones
Week 2: Without notes, define 25 core terms and correctly price a forward and calculate long and short payoffs at expiry
Week 4: Score at least 70% on a self-made 30-question test covering domains 1 and 2, including margin calls, basis and put-call parity
Week 6: Draw all four basic option payoffs and two spreads from memory and correctly value a three-period interest rate swap
Week 7: Score at least 75% on a mixed 40-question test across all four domains, with no domain below 60%
Week 8: Achieve at least 80% on two timed full-length mocks with every domain above 70%