CFA

Taylor Rule

G-K

S-T

Real Estate: Cap Rate and Return

MVO definition and pitfalls (3)

MVO solves for efficient frontier and asset allocation. Pitfalls include estimation, concentrated allocations, and a single period analysis

Utility Maximization

E(R)-0.005(risk aversion coefficient lambda)(variance of port)

Stock Concentration

Effective Duration

Effective Convexity

Fixed Income Return

Leverage Return

Gini Coefficient

Wealth Distribution - 0 is perfectly uniform and higher coefficient linked to higher skew in distribution

After Tax with accrual taxes, deferral of taxes on investment, deferral of taxes on investment and cost basis

change in market value of equity for banks and insurers

duration of equity of bank or insurer

Vol of percentage change in market value of equity capital of bank or insurer

Returns Based Attribution

Regressions to analyze returns over time

Holdings Based Attribution

Use beg of period assets

Transactions Based Attribution

Update beg of period assets with subsequent trades

B-F model

(w-W)(Bi-B) ALLOCATION

BHB Model

(w-W)Bi ALLOCATION

Contribution to Selection

W(R-B) (bench weight)

Interaction Attribution

(w-W)(R-B)

Carhart Model

attribution due to market index, market cap, book value to price, momentum

Benchmark Quality

P = M + S + A

market index + return due to style + active return

Sharpe

(r-rf)/o

Treynor

(r-rf)/B

Information Ratio

Performance against bench accounting for risk:

PORT RETURN - BENCH RETURN / stddev(rp-rb)

appraisal ratio

alpha / std dev of residual

Sortino

downside risk considered: return - rf / target semistandard dev

Type I/II error

I: Null rejected when no value added

II: null not rejected when there was value added

Collar

Like Bull spread but own the underlying too

Vol Skew

implied vol increases for otm puts and decreases for otm calls - otm puts are desirable as insurance against market declines while demand for otm calls is low

• for an increase in equity market volatility, buy atm call of VIX and sell OTM put on VIX

Notional Principal of Interest Rate Swap

((MDT-MDP)/MDS)(MVP)

Duration Based hedge ratio (interest rate risk)

BPVHR = (-BPVP/BPVCTD)*CF

BPV

Change in value of security given 1 basis point change in yield

BPV

MD*0.01%*MV

MV

CTD/100*NV

BPVHR

(BPVT-BPVP)*CF / BPVCTD

BPVT

MD*0.0001*MV

Moving to TARGET PORTFOLIO BETA

(BT-BP / BF)(MV/F)

F = futures price * multiplier

variance swaps

no exchange before or during - only exchange is at expiration based on difference between actual and implied variance

var swap - variance notional

vega notional / (2*strike)

var swap - profit

currency return and var