Okay so since Derivatives is my weakest topic no matter how much I study hard, I always end up understanding nothing and I wasted a lot of time during L1 and L2 because I lose interest in studying and I procrastinate because of this evil subject. So, I wanted to know how Derivatives in presented for L3? Is it just like L1 and L2 where there are 3-4 readings and doesn’t really show up under other subjects or is it spread throughout the curriculum along with those 3-4 readings?

Also, does it show up in the AM section or it’s entirely made up of Portfolio management?

  1. As I could recall much less hard calculations was required than in L2 but there were some new concepts mostly related to hedging and risk management.

  2. Yes and Derivatives are also a significant part of Portfolio management process.

Also be ready for a “cocktail” of everything under the Portfolio management in both, morning and afternoon session.

The focus at level 3 is to understand how derivatives are utilized in various ways to address needs within a portfolio. To that end, you’ll need to compute option payoffs, futures position sizing, etc. but you won’t be doing any pricing like what you saw in level 2. Hope that gives some clarity!

As these guys mentioned, Level 3 derivatives is more focused on the strategies behind using them and how to adjust your portfolio accordingly to protect yourself or generate additional returns, not complex valuations of them.

If you try to skip L3 derivatives, I wish you the best of luck to pass. Derivatives is one of the topics that acts as glue linking the other topics, primarily equity, PM, and Fixed Income.

Good discussion by others. I’d add that derivatives are especially relevant to adjusting FI exposure in managing the overall portfolio.

Level 3 derivatives topics are definitely easier computation wise than level 2.

Big time. Great point.

Okay Thank you everyone. I will start derivatives from scratch before beginning with preparation for L3.