Derivatives is the first finance course where the price of an instrument is not argued from expectations at all, and that change of footing is what unsettles people. An Introduction to Derivative Securities, 1st Edition by Robert A. Jarrow prices contracts by construction: build a portfolio that reproduces the payoff, and the contract must cost the same or an arbitrage exists. Students who arrive expecting to forecast a stock price find the reasoning almost inverted, because the forecast never enters. Once that clicks the subject becomes systematic, and until it does every chapter feels like a new set of formulas.
Why this test bank helps
Arbitrage arguments are learned by tracing them, not by reading them. Every question here is followed by a written rationale that reconstructs the trade — what you buy, what you sell, what you borrow, and why the resulting position must have zero value today. Seeing that structure repeatedly is what makes the forward price, the put-call relationship and the binomial hedge ratio look like one idea in three settings instead of three unrelated results.
What’s inside
- Questions in the book’s chapter order, from market mechanics through to pricing models.
- Multiple choice, true/false and numerical items involving payoffs, arbitrage bounds and hedge ratios.
- A written rationale under every question, setting out the replicating position behind the result.
- Focused coverage of no-arbitrage reasoning, which underlies almost every later result in the course.
- One organized PDF, downloadable the moment checkout completes.
Topics covered
- Markets and contract mechanics — exchange trading, clearing, margin, marking to market and settlement
- Forwards and futures — payoff diagrams, cost of carry, the forward price and convergence at maturity
- Arbitrage and the law of one price — replication, short selling, arbitrage bounds and the meaning of a fair price
- Option payoffs and strategies — calls, puts, spreads, straddles and the combined payoff at expiry
- Put-call parity — the relationship between a call, a put, the underlying and a riskless bond
- The binomial model — one and multi-period trees, the hedge ratio, risk-neutral probabilities and backward induction
- Continuous-time pricing — the Black-Scholes framework, its assumptions and the sensitivities of an option price
- Hedging and interest rate derivatives — delta hedging, swaps, and forward rates in a term structure setting
Who it’s for
Undergraduate finance majors and postgraduate students taking a first derivatives or financial markets course from this edition, and quantitatively minded students preparing for later work in risk management or trading.
How to use it (the right way)
Draw the payoff diagram and write out the replicating portfolio before touching a formula, since almost every result in the course is a rearrangement of one of those. Then attempt a block closed-book and read the rationale for anything you guessed. This is a study aid. Use it in line with your institution’s academic-integrity policy — for preparation and self-testing, never as a substitute for the coursework and never as material taken into a graded assessment.
Sample question (shows the format — your download contains the full set)
Q. A non-dividend-paying stock trades at $50. The one-year risk-free rate is 4 percent with annual compounding. What is the arbitrage-free one-year forward price?
- A. $48.08
- B. $50.00
- C. $52.00
- D. $54.00
Answer: C. Buying the stock with borrowed money and holding it to the delivery date costs 50 multiplied by 1.04, so the forward price must be $52 or the two positions could be traded against each other for a riskless profit. A discounts instead of compounding, which reverses the carry. B assumes the forward equals the spot, ignoring the financing cost of holding the asset. D applies an 8 percent rate, twice the stated one.
Edition & format
- Matches: An Introduction to Derivative Securities, 1st Edition, by Robert A. Jarrow (ISBN 9780393913071).
- Format: Digital PDF, delivered instantly after checkout.
- Access: Lifetime — re-download from your account whenever you need it.
Chapter numbering and notation differ between derivatives texts and printings. Please confirm the edition and ISBN above match the book your course assigned before buying.
Frequently asked questions
Is this the current edition? This set is prepared against the first edition, ISBN 9780393913071. If your syllabus names a different book or edition, choose that listing instead.
How do I receive it? The download appears as soon as checkout completes and is stored in your account for later. Nothing is shipped.
Do all the questions include rationales? Yes. Every item carries a written explanation, including the arbitrage trade behind a pricing result.
Is using a test bank allowed? As a study aid it is an ordinary practice resource. Follow your institution’s academic-integrity policy and never take it into a graded assessment.
More study material for this subject is in Finance Test Banks.
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