By the FinLingo Team | Capital markets practitioner, front office experience at a major European investment bank. FinLingo covers 342 lessons from bonds to exotic derivatives. About · Last updated:
Derivatives interviews span a wide range of roles — structuring, trading, sales, risk, and quant. But the core concepts tested are remarkably consistent. Here are the questions that appear across almost every derivatives-related interview.
"What is put-call parity?" C − P = S − K · e^(−rT). A long call and short put at the same strike replicate a forward. If parity is violated, arbitrage exists. You should be able to derive this from first principles: at expiry, the call/put combination always pays S − K regardless of where the stock ends.
"How is a forward priced?" F = S · e^(rT) for a non-dividend-paying asset. This is not a forecast — it is the only price that prevents arbitrage between spot and forward markets. With dividends or yield q: F = S · e^((r−q)T). You should know why: the forward buyer avoids the carry cost of holding the asset but misses the income it generates.
"What are the five Greeks and what does each measure?" Delta: price sensitivity to underlying. Gamma: rate of delta change. Vega: sensitivity to implied vol. Theta: daily time decay. Rho: sensitivity to interest rates. The interviewer will follow up on whichever Greek you explain least clearly.
"Why is a deep ITM European call worth approximately S − K · e^(−rT)?" Because it is almost certain to be exercised, so its value approaches the intrinsic value discounted at the risk-free rate. N(d1) approaches 1, N(d2) approaches 1, and the BSM formula collapses to the forward value minus the discounted strike.
"An option has delta 0.3 and gamma 0.02. The stock moves up $5. What is the new delta?" New delta ≈ 0.3 + 0.02 × 5 = 0.40. This is a linear approximation — the actual new delta will be slightly different because gamma itself changes. But in an interview, the linear answer is what is expected.
"You buy a 1-year ATM call at 20% implied vol. Over the next year, the stock realises 25% vol. Do you make money?" Probably yes, but not certainly. Your gamma rebalancing profits should exceed your theta costs on average. But the path matters: a single large move early followed by calm markets gives a different result than steady daily moves. Realised vol matching your forecast does not guarantee profit on any single trade.
Put-call parity (state and derive it), forward pricing (the no-arbitrage formula), the five Greeks (what each measures), delta-hedged P&L (depends on realised vs implied vol), and BSM intuition (what each input does to the price). These five topics cover roughly 80% of technical derivatives interviews.
It depends on the role. Structuring and trading interviews are the most technical, testing product decomposition and real-time Greeks reasoning. Sales interviews focus more on explaining concepts clearly and knowing market levels. Risk interviews test VaR, scenario analysis, and model limitations. All roles require solid BSM and Greeks knowledge.
For most front-office roles: comfortable with calculus (partial derivatives for Greeks), statistics (normal distribution, standard deviation), and quick mental arithmetic. You do not need to derive BSM from scratch, but you should understand what each term means. Quant roles require stochastic calculus and PDEs. FinLingo Level 3 covers the math needed for non-quant roles.
FinLingo covers every concept tested in derivatives interviews — from put-call parity to volatility trading. 342 lessons across 6 levels. Level 1 is free.
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