CFA Level I · CFA Level I Exam · Forward Commitment and Contingent Claim Features and Instruments
Which of the following best describes a contingent claim?
A contingent claim is a derivative whose payoff depends on the occurrence of a specified future event, such as the underlying price finishing above or below a strike. Options are the standard example. Forward commitments, by contrast, bind both parties to transact.
- AA contract that is always settled in cash
- BA derivative whose payoff depends on a specified eventCorrect
- CA derivative that obligates both parties to transact
Explanation
A contingent claim has a payoff that depends on the occurrence of a specific future event, usually the underlying price moving past a level. Options are the standard example. Obligating both parties to transact describes a forward commitment, and settlement method does not define the category.
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