Derivatives Foundation interview preparation

The full derivatives syllabus from no-arbitrage pricing through the Greeks, the volatility surface, swaps, CDS and clearing, plus the Indian index-options market. Every question is either traced to a named firm from a public candidate report, or tagged at desk level when we could not trace it - we do not invent attributions.

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Question bank

100 questions, mapped to the firms that asked them

Questions
100
Traced to a firm
29
Firms
19
Updated
September 2026
Asked at
All firmsMorgan Stanley4Nomura4Akuna Capital2Amundi2HSBC2PIMCO2Bank of America1Barclays1Citadel1DRW1Goldman Sachs1Jane Street1Millennium Management1Mizuho1Old Mission Capital1RBC Capital Markets1Scotiabank1UBS1Wells Fargo Securities1
Topic
All topicsForwards and futures10Options basics8Option pricing7The Greeks10Volatility7Option strategies9Swaps and rates7Credit derivatives4Market structure and clearing6Indian derivatives8Trading and markets9Brainteasers6Fit9
Level
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Type
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  1. 005What is basis risk, and when does it hurt a hedger most?Forwards and futuresIntermediatetechnicalCorporate treasury

    Say this

    Basis is spot minus futures. Basis risk is the risk that the two do not move together, so your hedge does not offset your exposure one for one. It bites hardest when the thing you are hedging is not the thing the contract is written on, or when your exposure and the contract mature on different dates.

    Then walk it

    1. Three sources. Asset mismatch, where you hedge jet fuel with crude futures. Maturity mismatch, where your exposure runs to March and the liquid contract expires in February. And location or grade mismatch, where your physical sits in a different delivery point.
    2. At expiry basis goes to zero for the matched asset, because delivery forces convergence. Away from expiry it wanders, so a hedge you intend to lift early carries basis risk even on a perfect asset match.
    3. The cross-hedge version is the dangerous one. Jet fuel and crude are usually 90 percent correlated, which sounds fine until a refining margin shock breaks the relationship precisely during the event you were hedging.
    4. A hedge does not eliminate risk, it swaps price risk for basis risk. You do it because basis is normally an order of magnitude less volatile than outright price, not because it is zero.
    5. Numbers make it concrete. Hedging a 10 million dollar Indian mid-cap book with Nifty futures might cut your volatility from 22 percent to 12, not to zero, because the beta is unstable and the residual is idiosyncratic. You have to be honest that the hedge is partial.
    6. The rolling version compounds it. If your exposure is five years and the liquid contract is three months, you roll twenty times and each roll happens at whatever basis the market offers you that day. That is stack-and-roll risk, and it is what broke Metallgesellschaft's oil hedge.

    Where candidates lose it

    Saying basis risk means the hedge is imperfect, without naming a source. Name asset, maturity and location mismatch, and give one live example where the correlation broke during the stress you were hedging. That is the answer a desk recognises.

    Expect next

    • How would you decide between a cross-hedge and no hedge at all?
    • What is stack-and-roll risk?
    • Your hedge ratio was estimated on three years of data. Why might it be wrong tomorrow?

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.