The Arbitrage-Free Valuation Framework (2025 Level II CFA® Exam – Fixed Income –Module 2)

Prep Packages for the CFA® Program offered by AnalystPrep (study notes, video lessons, question bank, mock exams, and much more): Level I: https://analystprep.com/shop/cfa-level-1-learn-practice-package/ Level II: https://analystprep.com/shop/learn-practice-package-for-level-ii-of-the-cfa-exam-by-analystprep/ Levels I, II & III (Lifetime access): https://analystprep.com/shop/cfa-unlimited-package-for-level-1-2-3/ Prep Packages for the FRM® Program: FRM Part I & Part II (Lifetime access): https://analystprep.com/shop/unlimited-package-for-frm-part-i-part-ii/ Topic 6 – Fixed Income Module 2 – The Arbitrage-Free Valuation Framework 0:00 Introduction and Learning Outcome Statements 3:10 Explain what is meant by arbitrage-free valuation of a fixed-income instrument. 7:28 Calculate the arbitrage-free value of an option-free, fixed-rate coupon bond. 11:57 Describe a binomial interest rate tree framework. 17:40 Describe the backward induction valuation methodology and calculate the value of a fixed-income instrument given its cash flow at each node. 22:53 Describe the process of calibrating a binomial interest rate tree to match a specific term structure 29:24 Compare pricing using the zero-coupon yield curve with pricing using an arbitrage-free binomial lattice. 37:05 Describe pathwise valuation in a binomial interest rate framework and calculate the value of a fixed income instrument given its cash flows along each path. 39:43 Describe a Monte Carlo forward-rate simulation and its application. 41:20 Describe term structure models and how they are used.