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
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Type
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  1. 020Price a one-period call with a binomial tree. Stock at 100, up to 120 or down to 80, strike 100, rate zero.Option pricingIntermediatetechnicalProp trading firmsQuant trading

    Say this

    Ten. The risk-neutral up probability is 0.5 because the up and down moves are symmetric around 100 with a zero rate, so the option is worth 0.5 times 20 plus 0.5 times 0, undiscounted. And I can prove it with a hedge rather than a probability.

    Then walk it

    1. Risk-neutral probability: p equals one plus r minus d over u minus d. With u of 1.2, d of 0.8 and r of zero, p is 0.2 over 0.4, so 0.5. Payoffs are 20 up and 0 down, so the value is 10.
    2. Now the replication, which is the answer they actually want. Delta is the payoff spread over the price spread: 20 minus 0 over 120 minus 80, so 0.5. Hold half a share, which costs 50, and borrow 40. In the up state the half share is worth 60, repay 40, net 20. In the down state 40 minus 40 is zero. Both match, and the portfolio cost 10.
    3. So the hedge ratio and the price come out of the same arithmetic, and the 0.5 that appears twice is a coincidence of the symmetric tree — one is a delta, the other a probability.
    4. Note that p is not a forecast. If I told you the stock has a 90 percent chance of going up, the option is still 10, because I can hedge it. The real probability affects whether you want the trade, not what it costs.
    5. Add a rate and both pieces move: p shifts up because the risk-neutral drift is higher, and you discount the expectation. With r at 5 percent p becomes 0.625 and the value rises to about 11.9.
    6. The limitation worth saying: a one-period tree is a cartoon. It only works because two states and two instruments make the market complete. Add a third state and I can no longer hedge exactly, and the price becomes a range rather than a number — which is the real world with jumps in it.

    Where candidates lose it

    Using the real-world probability, or averaging 120 and 80 to get an expected stock price and working from there. Also, do the replication: the interviewer wants to see you derive delta as the ratio of payoff spread to price spread, not quote a formula.

    Expect next

    • Redo it with the rate at 5 percent.
    • What if I tell you the real probability of the up move is 90 percent?
    • Now make it two periods and tell me what changes about the hedge.

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.