Just wondering about the trend of traditional asset managers wanting to become alternatives managers. Is it easy to just become one overnight?
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Can a traditional asset manager become a private equity manager overnight?
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Value vs Growth
What does the text say when a manager should decrease value tilt and increases growth tilt, and vice versa. In terms of economic cycle.
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why hedging with derivatives is costly?
CFAI online practice question - Harlow Choate Case Scenario
Consideration 3: It is difficult to hedge tail risks through portfolio diversification, and it can also prove too costly. We prefer to hedge using such derivatives as credit default swaps, which have a very low cost.
Solution
Consideration 3 is incorrect. Hedging tail risks through portfolio diversification is not difficult to implement and only has modest incremental cost. Hedging with derivatives, such as credit default swaps, is effective but costly.
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Yield curve strategies #27 (reading 20)
So there is this official problem that looks kind of way too long for a typical CFA problem or maybe I am too tired/dumb to get a hold of it.
The problem asks for highest returns on various portfolios. The right choice involved hedging the currency that is not expected to appreciate/depreciate against the other one. Then it moves to calculating returns on the bond in six months and so and so. It is IMO way too long and seems that it is not properly covered in the actual reading. I would appreciate if someone could shed some light here.
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How I passed CFA Level 3 after failing it before?
I really struggled with the essay part in CFA Level 3. Mainly because I didn’t understand how I was supposed to answer those essay questions, ie what format to use and whether my answers should be long or short. Despite preparing for almost a year for Level 3, I still failed it.
I was very scared and stressed when I had to retake the exam as I still didn’t understand what else I could do this year.
However, Nathan Ronen from Chalk and Board was my life saver. He has a very different approach in teaching Level 3. I bought his online courses, which were super helpful and very structured. He stresses how to study for Level 3 and what to pay attention to, rather than blindly going through the material. For me, it made such a big difference.
But the best part was his essay writing workshop, which I recommend to every single person who takes Level 3. I do not think you can find any other provider offering this kind of workshops. After going through the workshop and doing 2 exam essay parts in a row in a day, I finally realised what Level 3 was about and how to answer the essay part. It was extremely useful as Nathan checks every single answer and sends it back to you with his feedback.
Also, I found Nathan to be extremely supportive. Despite the fact that I am based in the UK and he is based in the NYC, he always asked me to text him if I had any questions. He is not just an amazing professional, but is also a very supportive person, which is so important when you are so lost and puzzled while studying for Level 3!
I highly recommend getting in touch with Nathan if you are taking Level 3!
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Seagull Strategies
CFAI online practice - Sabanai Investimentos Case Scenario
Exhibit 3
Spot and Forward Rates for AUD and CHF
Currency Pair
Current Spot Rate
Six-Month Forward Rate
Six-Month Forecast Spot Rate
BRL/AUD
2.1046
2.1523
2.0355
BRL/CHF
2.5309
2.4641
2.5642
Traldi suggests that the use of put options might be a better way to hedge currency exposure. Campos responds that there are better options-based strategies that can exploit market views and reduce hedging costs. She suggests the following strategies:
Strategy 1: For AUD exposure, the appropriate strategy is to be long put options at a strike price of 2.1046, short put options with a strike price 2.1006, and short call options with a strike price of 2.1456.
Strategy 2: For CHF exposure, the appropriate strategy is to be long put options at a strike price of 2.5309, short put options with a strike price 2.5049, and short call options with a strike price of 2.5669.
Q. Is Campos most likely correct that Strategy 1 and Strategy 2 will accomplish the goals of exploiting market views and reducing hedging costs?
- No, she is incorrect about reducing hedging costs.
- No, she is incorrect about exploiting market views.
- Yes.
Solution
B is correct. Campos suggests that both strategies help reduce hedging costs and allow the manager to exploit a market view. While it is true that both strategies help reduce hedging costs through premiums collected on short calls and puts, they both do not exploit the market view on the currencies, specifically, Strategy 1 does not. Exhibit 3 indicates that the expectation is for the AUD to depreciate to BRL/AUD 2.0355 and for the CHF to appreciate to BRL/CHF 2.5642. Strategy 1, the short seagull on the AUD, only provides downside protection to BRL/AUD 2.1006 (when the short put kicks in and neutralizes the hedge), not BRL/AUD 2.0355. Under Strategy 2, the expectation is for an appreciation to BRL/CHF 2.5642; here the option premium is pocketed and because the option is written with a strike of BRL/CHF 2.5669, it will expire worthless if the rate never gets to BRL/CHF 2.5669.
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My question: are both strategies incorrect or just strategy 2 incorrect, the solution confuses me “they both do not exploit the market view on the currencies, specifically, Strategy 1 does not”
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Fixed Income
Hi All, when the investor is undertaking a repo transaction and has placed a bond with the counter party (cp), is the interest payments received by the cp or by the investor.
Thanks
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Reading 32 EOC Question 17
The questions asks for the insurance required based on the needs analysis method.
In the solution, is there a reason it doesn’t account for the family living expenses $95,000/year that decreases by $30,000 each year when calculating the capital needs section?
Thanks.
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Hedge funds
BB example 7- Text says- The €2 per share borrowing costs and the €1 dividend payable to the lender together represent a €3 per share outflow that Khan must pay. But, the convertible bond pays a 5% coupon or €50, which equates to an inflow of €1 per share equivalent (€50 coupon/50 shares per bond). Therefore, the total profit outcomes, as indicated in the table, would each be reduced by €2. In sum, Khan would realize a total profit of €4 per each QXR share.
My Q here is that if we have borrowed the stock, the title will be with us right? Then we should receive the dividend. If we receive the dividend and have to pay it back to the lender, it will not be a cost to us right? then why it has been added to our cost here?
Thanks in advance.
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Tail risks
What is a left tail and right tail risk? Can anyone explain please?
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Probability, rule of addition
Let’s say you have two players in a soccer game, each with a 25% probability to score. What is the probability that at least one will score?
SO general rule of addition for two events: P(A ∪ B) = P(A) + P(B) - P(A ∩ B) = .25 + .25 - (.25*.25) = .43.75%, correct?
How do you do the math when it is three players involved, lets say each has 25% probability to score?
Is it: P(A)+P(B)+P(C)-P(A and C)-P(A and B)-P(B and C)?
And for four players, is it: P(A)+P(B)+P(C)+P(D) -P(A and B)-P(A and C)-P(A and D)-P(B and C)- P(B and D) - P(C and D) ?
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protective put - maximum loss
Hi guys.
So, protective put, long stock & long put.
Why is the max loss the depreciation of the stock you bought to the strike of the put, and the premium? The premium is clear, you lose it if you cannot exercise the option, because it is anyway a price you paid.
I thought that in this case the max loss is only the premium?
Many thanks,
C
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GIPS: Private equity: quarterly or annual valuation?
reading 6, page 355 of CFAI book about provisions for Private Equity:
“There are two provisions related to input data. For periods ending on or after 1 January 2011, private equity investments must be valued in accordance with the definition of fair value and the GIPS Valuation Principles, and they must be valued at least annually (I.7.A.1–2). We will discuss the GIPS Valuation Principles in a later section of this reading.”
later in the textbook, page 357
“Finally, there are some recommendations that we have not previously mentioned. Private equity investments should be valued at least quarterly; for periods ending prior to 1 January 2011, the SI-IRR should be calculated using daily cash flows; and firms should disclose and explain material differences between the valuations used in performance reporting and the valuations used in financial reporting as of each annual period end (I.7.B.1–3).”
Which is correct?
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Synthetic Long Put
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Fixed Income
Hi All, when the investor is undertaking a repo transaction and has placed a bond with the counter party (cp), is the interest payments received by the cp or by the investor.
Thanks
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Human Capital to Financial Capital Graph
Maybe this is more for the water-cooler forum but I thought I would share an interesting perspective on exhibit 3 in reading 12 asset allocation. The exhibit covers the amount of human capital vs financial capital during a person’s life. What I thought was interesting is that the chart helps figure out the old idiom of when a person is worth more dead than alive.
Glad I work with investments and not actuarial science so I don’t have to think through these philosophical questions as often.
I would find it interesting if there was a study done of the amount of human capital versus financial capital of different generations or different professions. Attorneys and doctors versus skilled labor. How much liabilities and risk would a person take on to get rewarded with financial capital. Or maybe there is even an equation at the macro level for Expected Financial Capital as a function of human capital, risk, opportunity, and intelligence. Or is it that financial capital is a function of human capital and opportunity; And that human capital is a function of individual traits like intelligence and risk taking.
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Factor diversified vs Sector rotator
Why source of market risk is higher for Factor diversified portfolio than Sector rotator (with concentrated sector and cash bets)?
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Are puts a cross hedge or complete hedge?
Hey guys,
Is purchasing put options on your concentrated position stock an example of a cross hedge or a complete hedge?
I thought it was a complete hedge, but the text says its a cross hedge.
Does anybody agree with the text, and why?
Regards,
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non-linear scaling data
How would you scale data to keep in in the range of 0 to 1, but in a non-linear way so that it skew more on the high side.
SO I can do it linearly:
x = (n - Rmin) /. (Rmax-Rmin)
So if the number is 50, and the range of the number is 25 to 75, and I want to normalize that number to between 0 to 1… The formula above would be: (50-25) / (75-25) = .5.. This formula is similar to some of the fixed income calcuations…
Biut how do I skew this so that a number like 60 would result in something like .75 and a number like 70 would scale to .90.. while a number like 10 would result in something like .11?
I tried doing a log (x) / 2 but it is too dramatic of a scale.
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Reading 24, EOC question 17, rebalancing
In the reading it states under 4. Creating Fundamental Act strategis, that the manager would need to keep ‘regular portfolio balancing’ that ensure that the investment mandat and the desired risk exposure are maintained.. however in Q17, it is asked for managing a fund that is following a fundamental active investment process how to rebalance the portfolio? In my opinion it should be answer a) regular rebalancing, (as per the text of the curriculum), but it appears to be ‘in response to changes in company specific information.. I just wonder did I misread the Curriculum or is the answer to the question wrong?
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