DFC Cheatsheet — Futures & Options Formulas, Payoffs, Swaps, Checklists & Glossary

Use this as your last-mile DFC review. Pair it with the Syllabus for coverage and Practice for speed.

Official blueprint (CSI)

DFC is 65 multiple-choice questions. Weightings below map to target question counts (rounded to sum to 65).

Sources: https://www.csi.ca/en/learning/courses/dfc/curriculum and https://www.csi.ca/en/learning/courses/dfc/exam-credits

Derivatives in one picture (linear vs non-linear)

    flowchart LR
	  U[Underlying] --> F["Futures/Forwards (linear)"]
	  U --> O["Options (non-linear)"]
	  U --> S["Swaps (linear legs)"]
	  F --> H["Hedge / Speculate"]
	  O --> P["Protect / Income / Leverage"]
	  S --> X[Swap one risk for another]

Futures fundamentals (must know)

Futures vs forwards (exam reflex)

• Forward: OTC, customized terms, counterparty credit exposure (concept).
• Future: exchange-traded, standardized, cleared, and marked-to-market daily.

Contract value and P/L

If a futures price moves by \(\Delta F\), the P/L is:

\[ \text{Futures P/L}=\Delta F \times M \times N \]

Where:

• \(M\) is the contract multiplier (contract size).
• \(N\) is the number of contracts.

Direction check: If you’re long, profit when futures prices rise; if you’re short, profit when futures prices fall.

Margin and marking-to-market (what it changes)

• Initial margin: required to open/maintain a position.
• Variation margin: daily gain/loss cashflows due to marking-to-market.
• Margin call: occurs when margin falls below maintenance.

Exam trap: futures gains/losses are realized through daily settlement, not only at expiry.

Cost of carry intuition (pricing)

At a concept level, the futures price reflects spot plus carry costs and benefits:

\[ F_0\approx S_0\,e^{(r-q)T} \]

• \(r\): financing rate (carry cost)
• \(q\): income/benefit yield (dividends, convenience yield)
• \(T\): time to maturity

Basis and convergence

• Basis: \(\text{Basis}=S-F\) (spot minus futures).
• Convergence: near expiry, futures and spot converge.

Exam use: basis helps explain why hedges are imperfect and why P/L isn’t just “price change × quantity”.

Hedging with futures (intent first)

Hedge intent often looks like:

• Short hedge: protect against price declines (you’re exposed to falling prices).
• Long hedge: protect against price increases (you’re exposed to rising prices).

Rule: choose the futures position that moves opposite the underlying exposure you want to hedge.

Exchange-traded options (high yield)

Moneyness

Intrinsic value and time value

\[ \text{Call intrinsic}=\max(S-K,0) \] \[ \text{Put intrinsic}=\max(K-S,0) \]

Time value: \(\text{Premium} - \text{Intrinsic}\) (concept).

Profit at expiry (four core positions)

Let \(S_T\) be the underlying price at expiry, \(K\) the strike, \(P\) the premium.

• Long call profit: \(\max(S_T-K,0)-P\)
• Short call profit: \(P-\max(S_T-K,0)\)
• Long put profit: \(\max(K-S_T,0)-P\)
• Short put profit: \(P-\max(K-S_T,0)\)

Option price drivers (what you can usually eliminate with)

Major drivers (concept):

• underlying price \(S\)
• strike \(K\)
• time to expiry \(T\)
• volatility (implicit in “major factors”)
• interest rates (carry)

Delta (direction + sensitivity)

Delta is the change in option value per small change in the underlying (concept):

• call delta is typically positive
• put delta is typically negative

Swaps (structure, not math)

Interest rate swap (plain vanilla)

• One party pays fixed, receives floating (or vice versa) on a notional amount.
• Used to transform interest rate exposure (e.g., fixed-rate debt → floating-rate exposure).

Currency swap (concept)

• Exchanges principal and interest in two currencies (concept).
• Used to manage FX exposure and funding costs.

Credit swaps (concept)

• Used to transfer credit risk; questions often emphasize credit risk and why controls/collateral matter.

Funds and structured products (DFC basics)

Why funds use derivatives (common motives)

• manage cash flows and rebalance efficiently
• hedge FX or interest rate risk (concept)
• gain/adjust exposure without trading the underlying directly (concept)

Principal-Protected Notes (PPNs) (concept)

Common structure intuition:

• zero-coupon bond to protect principal at maturity (concept)
• option exposure for upside participation (concept)

Operational considerations (low weight, still testable)

Remember the big buckets:

• market risk (price moves)
• credit risk (counterparty)
• liquidity risk (can’t exit/price reliably)
• operational risk (process/control failures)

Build the habit: identify the risk first, then choose the control/monitoring answer.

Glossary (DFC)

• Basis: difference between spot and futures prices; commonly \(S-F\).
• Backwardation / inverted market: futures prices below spot (concept).
• Clearinghouse: central counterparty for exchange-traded contracts; manages default risk (concept).
• Contract multiplier: value per point of futures price movement; used to compute contract value/P/L.
• Convergence: futures and spot prices approach each other as the contract nears expiry.
• Cost of carry: net financing/storage cost minus income/benefits of holding the underlying (concept).
• Delta: option sensitivity to the underlying; a directional measure (concept).
• Derivative: instrument whose value depends on an underlying interest (rate, equity, currency, commodity, index).
• Forward: OTC agreement to transact later at a pre-set price; customized; credit exposure (concept).
• Future: standardized, exchange-traded forward; cleared and marked-to-market daily.
• Hedge: position intended to reduce a pre-existing risk exposure.
• Initial margin / variation margin: collateral to open/maintain futures positions and daily settlement flows.
• Intrinsic value: immediate exercise value of an option (max with 0).
• Moneyness: ITM/ATM/OTM status based on \(S\) relative to \(K\).
• Notional: reference principal for swaps; usually not exchanged (except some currency swaps).
• Option premium: price paid by the buyer / received by the writer.
• Swaption: option on an interest rate swap (concept).
• Time value: option premium in excess of intrinsic value (concept).