P2.T8. Investment Management

Practice questions for investment management and risk management

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  1. Nicole Seaman

    Quiz - T8 P2.T8.712. Hedge fund performance

    Dear Mr David, Thanks a lot for perfect explanation, which was not clear in the original post. Now I got it and I am sure whoever refers to this post in future will not have any difficulty in understanding. Thanks again Regards Ashok
    Dear Mr David, Thanks a lot for perfect explanation, which was not clear in the original post. Now I got it and I am sure whoever refers to this post in future will not have any difficulty in understanding. Thanks again Regards Ashok
    Dear Mr David, Thanks a lot for perfect explanation, which was not clear in the original post. Now I got it and I am sure whoever refers to this post in future will not have any difficulty in understanding. Thanks again Regards Ashok
    Dear Mr David, Thanks a lot for perfect explanation, which was not clear in the original post. Now I got it and I am sure whoever refers to this post in future will not have any difficulty in...
    Replies:
    3
    Views:
    69
  2. Nicole Seaman

    Quiz - T8 P2.T8.711. Time- versus dollar-weighted returns, M-squared measure, and performance attribution

    That is helpful indeed. Thank you, David. (The quadratic formula '4a^2+3a-5=0' was merely an example, and not derived from your exercises.)
    That is helpful indeed. Thank you, David. (The quadratic formula '4a^2+3a-5=0' was merely an example, and not derived from your exercises.)
    That is helpful indeed. Thank you, David. (The quadratic formula '4a^2+3a-5=0' was merely an example, and not derived from your exercises.)
    That is helpful indeed. Thank you, David. (The quadratic formula '4a^2+3a-5=0' was merely an example, and not derived from your exercises.)
    Replies:
    4
    Views:
    55
  3. Nicole Seaman

    Quiz - T8 P2.T8.710. Portfolio value at risk (VaR) and surplus at risk (SaR)

    Hi David, I kept calculating for (A+L) rather than for (A-L), so my bad. Sorry for the late reply too. I had jumped to Book 1, assuming that a completely different focus for a few days would restore my focus.
    Hi David, I kept calculating for (A+L) rather than for (A-L), so my bad. Sorry for the late reply too. I had jumped to Book 1, assuming that a completely different focus for a few days would restore my focus.
    Hi David, I kept calculating for (A+L) rather than for (A-L), so my bad. Sorry for the late reply too. I had jumped to Book 1, assuming that a completely different focus for a few days would restore my focus.
    Hi David, I kept calculating for (A+L) rather than for (A-L), so my bad. Sorry for the late reply too. I had jumped to Book 1, assuming that a completely different focus for a few days would...
    Replies:
    3
    Views:
    86
  4. Nicole Seaman

    Quiz - T8 P2.T8.709. Ang on Factors and Factor Theory

    Hi @gwfrm16 The regression shown is a regression of the portfolio's excess returns against the benchmark's excess returns, β(P,B), so that this beta is represented by the regression slope and we can infer correlation, ρ(P,B) = β(P,B)*σ(B)/σ(P) = 0.92204*2.05%/3.03% = 0.6225 (my simulation input was 0.60 so this is the randomly sampled outcome, which is close as expected). On the other hand,...
    Hi @gwfrm16 The regression shown is a regression of the portfolio's excess returns against the benchmark's excess returns, β(P,B), so that this beta is represented by the regression slope and we can infer correlation, ρ(P,B) = β(P,B)*σ(B)/σ(P) = 0.92204*2.05%/3.03% = 0.6225 (my simulation input was 0.60 so this is the randomly sampled outcome, which is close as expected). On the other hand,...
    Hi @gwfrm16 The regression shown is a regression of the portfolio's excess returns against the benchmark's excess returns, β(P,B), so that this beta is represented by the regression slope and we can infer correlation, ρ(P,B) = β(P,B)*σ(B)/σ(P) = 0.92204*2.05%/3.03% = 0.6225 (my simulation input...
    Hi @gwfrm16 The regression shown is a regression of the portfolio's excess returns against the benchmark's excess returns, β(P,B), so that this beta is represented by the regression slope and we...
    Replies:
    5
    Views:
    76
  5. Nicole Seaman

    P2.T8.708. Illiquidity risk premium & portfolio choice decision on the inclusion of illiquid assets

    Hi David, For 708,2 rebalancing as a means to harvest the illiquidity premium, am I right to see this as coincidental/ a by-product? As I understand it, for HML (value) for example, we buy low and sell high. But if an illiquid asset doesn't match this cycle i.e. it happens to continue being neither, then it will be not be subject to rebalancing. So with rebalancing, we are at most indirectly...
    Hi David, For 708,2 rebalancing as a means to harvest the illiquidity premium, am I right to see this as coincidental/ a by-product? As I understand it, for HML (value) for example, we buy low and sell high. But if an illiquid asset doesn't match this cycle i.e. it happens to continue being neither, then it will be not be subject to rebalancing. So with rebalancing, we are at most indirectly...
    Hi David, For 708,2 rebalancing as a means to harvest the illiquidity premium, am I right to see this as coincidental/ a by-product? As I understand it, for HML (value) for example, we buy low and sell high. But if an illiquid asset doesn't match this cycle i.e. it happens to continue being...
    Hi David, For 708,2 rebalancing as a means to harvest the illiquidity premium, am I right to see this as coincidental/ a by-product? As I understand it, for HML (value) for example, we buy low and...
    Replies:
    8
    Views:
    104
  6. Nicole Seaman

    P2.T8.707. The biases of illiquid markets (Ang)

    Thank you David for your detailed explanation!
    Thank you David for your detailed explanation!
    Thank you David for your detailed explanation!
    Thank you David for your detailed explanation!
    Replies:
    6
    Views:
    124
  7. Nicole Seaman

    P2.T8.706. Alpha, style analysis and the risk anomaly (Ang)

    Learning objectives: Explain how to measure time-varying factor exposures and their use in style analysis. Describe issues that arise when measuring alphas for nonlinear strategies. Compare the volatility anomaly and beta anomaly, and analyze evidence of each anomaly. Describe potential explanations for the risk anomaly. Questions: 706.1. In order to evaluate the performance of its funds,...
    Learning objectives: Explain how to measure time-varying factor exposures and their use in style analysis. Describe issues that arise when measuring alphas for nonlinear strategies. Compare the volatility anomaly and beta anomaly, and analyze evidence of each anomaly. Describe potential explanations for the risk anomaly. Questions: 706.1. In order to evaluate the performance of its funds,...
    Learning objectives: Explain how to measure time-varying factor exposures and their use in style analysis. Describe issues that arise when measuring alphas for nonlinear strategies. Compare the volatility anomaly and beta anomaly, and analyze evidence of each anomaly. Describe potential...
    Learning objectives: Explain how to measure time-varying factor exposures and their use in style analysis. Describe issues that arise when measuring alphas for nonlinear strategies. Compare the...
    Replies:
    0
    Views:
    55
  8. Nicole Seaman

    P2.T8.705. Berkshire Hathaway versus its benchmark (Ang)

    Hi @Jerome Le Bos, T-stats are calculated in the following way: the coefficient of the regression divided by its standard error. 1.) CAPM alpha 0.720/0.356 = 2.02 (t-stat) 2. F-F alpha 0.650/0.332 = 1.96 (t-stat) Assuming a 95% confidence level: To achieve a significance level of 0.05 for a two-sided test, the absolute value of the test statistic must be greater than or equal to the...
    Hi @Jerome Le Bos, T-stats are calculated in the following way: the coefficient of the regression divided by its standard error. 1.) CAPM alpha 0.720/0.356 = 2.02 (t-stat) 2. F-F alpha 0.650/0.332 = 1.96 (t-stat) Assuming a 95% confidence level: To achieve a significance level of 0.05 for a two-sided test, the absolute value of the test statistic must be greater than or equal to the...
    Hi @Jerome Le Bos, T-stats are calculated in the following way: the coefficient of the regression divided by its standard error. 1.) CAPM alpha 0.720/0.356 = 2.02 (t-stat) 2. F-F alpha 0.650/0.332 = 1.96 (t-stat) Assuming a 95% confidence level: To achieve a significance level of 0.05 for...
    Hi @Jerome Le Bos, T-stats are calculated in the following way: the coefficient of the regression divided by its standard error. 1.) CAPM alpha 0.720/0.356 = 2.02 (t-stat) 2. F-F...
    Replies:
    12
    Views:
    134
  9. Nicole Seaman

    P2.T8.704. Alpha and effective benchmarks (Andrew Ang)

    Let me back up some of the concepts about beta vs vol and high vs low beta stocks: 1. High beta stocks have higher level of vol That said, high beta stocks seek to capitalize on continued growth with market-beating returns. This is because when markets soar, high beta stocks experience larger gains than the broader market counterparts and thus, outpace their rivals. However, these exhibit a...
    Let me back up some of the concepts about beta vs vol and high vs low beta stocks: 1. High beta stocks have higher level of vol That said, high beta stocks seek to capitalize on continued growth with market-beating returns. This is because when markets soar, high beta stocks experience larger gains than the broader market counterparts and thus, outpace their rivals. However, these exhibit a...
    Let me back up some of the concepts about beta vs vol and high vs low beta stocks: 1. High beta stocks have higher level of vol That said, high beta stocks seek to capitalize on continued growth with market-beating returns. This is because when markets soar, high beta stocks experience larger...
    Let me back up some of the concepts about beta vs vol and high vs low beta stocks: 1. High beta stocks have higher level of vol That said, high beta stocks seek to capitalize on continued growth...
    Replies:
    14
    Views:
    221
  10. Nicole Seaman

    P2.T8.703. Value, size and momentum investing (Andrew Ang)

    Hi David, Can I/we get your input here on how rebalancing is deemed a short vol strategy? It looks like the premium part is related to mean-reversion (buy low, sell high). This has added benefits of diversification or at least retaining your initial risk/ factor portfolio allocation (e.g. per Morgan Stanley article, avoiding equity over-exposure/disfigurement at the times of major downturn)....
    Hi David, Can I/we get your input here on how rebalancing is deemed a short vol strategy? It looks like the premium part is related to mean-reversion (buy low, sell high). This has added benefits of diversification or at least retaining your initial risk/ factor portfolio allocation (e.g. per Morgan Stanley article, avoiding equity over-exposure/disfigurement at the times of major downturn)....
    Hi David, Can I/we get your input here on how rebalancing is deemed a short vol strategy? It looks like the premium part is related to mean-reversion (buy low, sell high). This has added benefits of diversification or at least retaining your initial risk/ factor portfolio allocation (e.g. per...
    Hi David, Can I/we get your input here on how rebalancing is deemed a short vol strategy? It looks like the premium part is related to mean-reversion (buy low, sell high). This has added benefits...
    Replies:
    9
    Views:
    120
  11. Nicole Seaman

    P2.T8.702. Macroeconomic risk factors including growth, inflation and volatility (Andrew Ang)

    Hi @gwfrm16 Yes, indeed, our mistake. Thank you for noticing. I have corrected the answer to reflect the true version of the statement (ie, that all asset classes are worse under high inflation): "702.1. C. False. To be true, this should instead read: During periods of high inflation, all five asset classes perform significantly WORSE than during periods of low inflation." and added the...
    Hi @gwfrm16 Yes, indeed, our mistake. Thank you for noticing. I have corrected the answer to reflect the true version of the statement (ie, that all asset classes are worse under high inflation): "702.1. C. False. To be true, this should instead read: During periods of high inflation, all five asset classes perform significantly WORSE than during periods of low inflation." and added the...
    Hi @gwfrm16 Yes, indeed, our mistake. Thank you for noticing. I have corrected the answer to reflect the true version of the statement (ie, that all asset classes are worse under high inflation): "702.1. C. False. To be true, this should instead read: During periods of high inflation, all five...
    Hi @gwfrm16 Yes, indeed, our mistake. Thank you for noticing. I have corrected the answer to reflect the true version of the statement (ie, that all asset classes are worse under high inflation):...
    Replies:
    2
    Views:
    71
  12. Nicole Seaman

    P2.T8.701. Multifactor models (Andrew Ang)

    Hi @Roddefeller That is just awesome :cool: Terrific, thank you! That's solid ... In the same vein, I opened up the Cochrane book and I see what you are saying about the crucial assumption--and initially counterintutive to me--that R(i)*m = 1.0 In chapter 1, he sets up his basic pricing equation given by E(m*R) = 1 as "by far the most important special case of the basic formula p = E(m*R)" (page...
    Hi @Roddefeller That is just awesome :cool: Terrific, thank you! That's solid ... In the same vein, I opened up the Cochrane book and I see what you are saying about the crucial assumption--and initially counterintutive to me--that R(i)*m = 1.0 In chapter 1, he sets up his basic pricing equation given by E(m*R) = 1 as "by far the most important special case of the basic formula p = E(m*R)" (page...
    Hi @Roddefeller That is just awesome :cool: Terrific, thank you! That's solid ... In the same vein, I opened up the Cochrane book and I see what you are saying about the crucial assumption--and initially counterintutive to me--that R(i)*m = 1.0 In chapter 1, he sets up his basic pricing equation given...
    Hi @Roddefeller That is just awesome :cool: Terrific, thank you! That's solid ... In the same vein, I opened up the Cochrane book and I see what you are saying about the crucial assumption--and...
    Replies:
    7
    Views:
    157
  13. Nicole Seaman

    P2.T8.700. Theory of factor risk premiums (Andrew Ang)

    Thx so much David.......:)
    Thx so much David.......:)
    Thx so much David.......:)
    Thx so much David.......:)
    Replies:
    9
    Views:
    120
  14. Nicole Seaman

    P2.T8.414. Hedge fund due diligence, continued (Mirabile)

    @bpdulog great point! Your interpretation ("the ability of the investor to pull out their money";) would make a lot more sense (at least to me) than the phrasing suggested by Mirabile ...
    @bpdulog great point! Your interpretation ("the ability of the investor to pull out their money";) would make a lot more sense (at least to me) than the phrasing suggested by Mirabile ...
    @bpdulog great point! Your interpretation ("the ability of the investor to pull out their money";) would make a lot more sense (at least to me) than the phrasing suggested by Mirabile ...
    @bpdulog great point! Your interpretation ("the ability of the investor to pull out their money";) would make a lot more sense (at least to me) than the phrasing suggested by Mirabile ...
    Replies:
    6
    Views:
    133
  15. Nicole Seaman

    P2.T8.413. Hedge fund due diligence (Mirabile)

    I was thinking the same thing. I obviously saw A as an issue but C seemed to me like management was trying to hide something with vague wording.
    I was thinking the same thing. I obviously saw A as an issue but C seemed to me like management was trying to hide something with vague wording.
    I was thinking the same thing. I obviously saw A as an issue but C seemed to me like management was trying to hide something with vague wording.
    I was thinking the same thing. I obviously saw A as an issue but C seemed to me like management was trying to hide something with vague wording.
    Replies:
    7
    Views:
    201
  16. Nicole Seaman

    P2.T8.412. Hedge funds as diversifiers and agents (Constantinides)

    Hi @Karim_B I didn't mean to be decisive so much as to point out that Fung & Hsieh appear to define the principal-agent problem narrowly, in terms of the incentive fee (typically the 20% in "2 and 20";). I meant to suggest that the principal-agent problem is a broader umbrella. It includes, also, the 2.0% fee; the management fee is an incentive to grow AUM, which from my perspective, incents...
    Hi @Karim_B I didn't mean to be decisive so much as to point out that Fung & Hsieh appear to define the principal-agent problem narrowly, in terms of the incentive fee (typically the 20% in "2 and 20";). I meant to suggest that the principal-agent problem is a broader umbrella. It includes, also, the 2.0% fee; the management fee is an incentive to grow AUM, which from my perspective, incents...
    Hi @Karim_B I didn't mean to be decisive so much as to point out that Fung & Hsieh appear to define the principal-agent problem narrowly, in terms of the incentive fee (typically the 20% in "2 and 20";). I meant to suggest that the principal-agent problem is a broader umbrella. It includes,...
    Hi @Karim_B I didn't mean to be decisive so much as to point out that Fung & Hsieh appear to define the principal-agent problem narrowly, in terms of the incentive fee (typically the 20% in "2 and...
    Replies:
    5
    Views:
    123
  17. Nicole Seaman

    P2.T8.411. Hedge funds strategies (Constantinides)

    AIMs: Evaluate the role of investors in shaping the hedge fund industry. Explain the relationship between risk and alpha in hedge funds. Compare and contrast the different hedge fund strategies, describe their return characteristics, and describe the inherent risks of each strategy. Questions: 411.1. According to Fung and Hsieh "the majority of managed futures funds pursue trend following...
    AIMs: Evaluate the role of investors in shaping the hedge fund industry. Explain the relationship between risk and alpha in hedge funds. Compare and contrast the different hedge fund strategies, describe their return characteristics, and describe the inherent risks of each strategy. Questions: 411.1. According to Fung and Hsieh "the majority of managed futures funds pursue trend following...
    AIMs: Evaluate the role of investors in shaping the hedge fund industry. Explain the relationship between risk and alpha in hedge funds. Compare and contrast the different hedge fund strategies, describe their return characteristics, and describe the inherent risks of each...
    AIMs: Evaluate the role of investors in shaping the hedge fund industry. Explain the relationship between risk and alpha in hedge funds. Compare and contrast the different hedge fund strategies,...
    Replies:
    0
    Views:
    115
  18. Nicole Seaman

    P2.T8.410. Fung and Hsieh on hedge funds: industry and biases (Constantinides)

    Thanks for the award, @David Harper CFA FRM! I have to confess that I did not resort to the original Fung & Hsieh reading as these two guys are also covered within the CAIA curriculum (e.g. the Fung & Hsieh 7-factor model) and for all the hedge-fund related topics I think there is no better source than the original CAIA readings which discusses all sorts of biases in great detail.
    Thanks for the award, @David Harper CFA FRM! I have to confess that I did not resort to the original Fung & Hsieh reading as these two guys are also covered within the CAIA curriculum (e.g. the Fung & Hsieh 7-factor model) and for all the hedge-fund related topics I think there is no better source than the original CAIA readings which discusses all sorts of biases in great detail.
    Thanks for the award, @David Harper CFA FRM! I have to confess that I did not resort to the original Fung & Hsieh reading as these two guys are also covered within the CAIA curriculum (e.g. the Fung & Hsieh 7-factor model) and for all the hedge-fund related topics I think there is no better...
    Thanks for the award, @David Harper CFA FRM! I have to confess that I did not resort to the original Fung & Hsieh reading as these two guys are also covered within the CAIA curriculum (e.g. the...
    Replies:
    4
    Views:
    115
  19. Nicole Seaman

    P2.T8.409. Litterman on performance measurement

    This reading my be outdated - it conflicts with current ERM practices
    This reading my be outdated - it conflicts with current ERM practices
    This reading my be outdated - it conflicts with current ERM practices
    This reading my be outdated - it conflicts with current ERM practices
    Replies:
    13
    Views:
    213
  20. Nicole Seaman

    P2.T8.408. Risk planning and budgeting (Litterman)

    AIMs: Define, compare and contrast VaR and tracking error as risk measures. Describe risk planning, including its objectives, effects and the participants in its development. Describe risk budgeting and the role of quantitative methods in risk budgeting. Questions: 408.1. Both value at risk (VaR) and tracking error (TE) are considered risk measures. Which of the following statements is TRUE...
    AIMs: Define, compare and contrast VaR and tracking error as risk measures. Describe risk planning, including its objectives, effects and the participants in its development. Describe risk budgeting and the role of quantitative methods in risk budgeting. Questions: 408.1. Both value at risk (VaR) and tracking error (TE) are considered risk measures. Which of the following statements is TRUE...
    AIMs: Define, compare and contrast VaR and tracking error as risk measures. Describe risk planning, including its objectives, effects and the participants in its development. Describe risk budgeting and the role of quantitative methods in risk budgeting. Questions: 408.1. Both value at risk...
    AIMs: Define, compare and contrast VaR and tracking error as risk measures. Describe risk planning, including its objectives, effects and the participants in its development. Describe risk...
    Replies:
    0
    Views:
    101
  21. Nicole Seaman

    PQ-T8 P2.T8.407 Hedge fund strategies (topic review)

    Hi @Kashif Khalid I agree with you that global macro are top-down managers. But I think the reading stated that a global macro manager could employ some component of bottom-up approach, in addition to their top-down approach (which seems like the natural primary given their broad discretion across asset classses). But don't get me wrong, in terms of simplification and primary emphasis, I think...
    Hi @Kashif Khalid I agree with you that global macro are top-down managers. But I think the reading stated that a global macro manager could employ some component of bottom-up approach, in addition to their top-down approach (which seems like the natural primary given their broad discretion across asset classses). But don't get me wrong, in terms of simplification and primary emphasis, I think...
    Hi @Kashif Khalid I agree with you that global macro are top-down managers. But I think the reading stated that a global macro manager could employ some component of bottom-up approach, in addition to their top-down approach (which seems like the natural primary given their broad discretion...
    Hi @Kashif Khalid I agree with you that global macro are top-down managers. But I think the reading stated that a global macro manager could employ some component of bottom-up approach, in...
    Replies:
    4
    Views:
    271
  22. Nicole Seaman

    PQ-T8 P2.T8.406. Equity market neutral hedge funds (topic review)

    Thanks @emilioalzamora1
    Thanks @emilioalzamora1
    Thanks @emilioalzamora1
    Thanks @emilioalzamora1
    Replies:
    9
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    366
  23. Nicole Seaman

    PQ-T8 P2.T8.405. Style analysis and market timing (topic review)

    @Tania Pereira At the end of Bodie Chapter 24 (Topic 8) emphasis mine:
    @Tania Pereira At the end of Bodie Chapter 24 (Topic 8) emphasis mine:
    @Tania Pereira At the end of Bodie Chapter 24 (Topic 8) emphasis mine:
    @Tania Pereira At the end of Bodie Chapter 24 (Topic 8) emphasis mine:
    Replies:
    19
    Views:
    532
  24. Nicole Seaman

    PQ-T8 P2.T8.404. Information ratio, M-squared and the significance of performance (topic review)

    @NadyaRedd I've been there, many times! :)
    @NadyaRedd I've been there, many times! :)
    @NadyaRedd I've been there, many times! :)
    @NadyaRedd I've been there, many times! :)
    Replies:
    18
    Views:
    563
  25. Nicole Seaman

    PQ-T8 P2.T8.403. Time-weighted versus dollar-weighted returns (topic review)

    Hi @dbansal I think that's mostly okay, I don't know exactly what you mean by not taking the mean of the arithmetic/geometric returns, I don't think my answer alters the fundamental definitions of these terms. So I'd probably be more focused on what is the correct definition of (eg) an time-weighted return, but it looks okay to me to use a cumulative perspective for comparison, where they...
    Hi @dbansal I think that's mostly okay, I don't know exactly what you mean by not taking the mean of the arithmetic/geometric returns, I don't think my answer alters the fundamental definitions of these terms. So I'd probably be more focused on what is the correct definition of (eg) an time-weighted return, but it looks okay to me to use a cumulative perspective for comparison, where they...
    Hi @dbansal I think that's mostly okay, I don't know exactly what you mean by not taking the mean of the arithmetic/geometric returns, I don't think my answer alters the fundamental definitions of these terms. So I'd probably be more focused on what is the correct definition of (eg) an...
    Hi @dbansal I think that's mostly okay, I don't know exactly what you mean by not taking the mean of the arithmetic/geometric returns, I don't think my answer alters the fundamental definitions of...
    Replies:
    13
    Views:
    506
  26. Nicole Seaman

    PQ-T8 P2.T8.402. Performance evaluation (FRM handbook) (topic review)

    Just in case anyone was unsure of how to do this, i used the data / stat feature on my BA2 to calculate the variance and it worked like a charm.
    Just in case anyone was unsure of how to do this, i used the data / stat feature on my BA2 to calculate the variance and it worked like a charm.
    Just in case anyone was unsure of how to do this, i used the data / stat feature on my BA2 to calculate the variance and it worked like a charm.
    Just in case anyone was unsure of how to do this, i used the data / stat feature on my BA2 to calculate the variance and it worked like a charm.
    Replies:
    16
    Views:
    436
  27. David Harper CFA FRM

    PQ-T8 P2.T8.401. Component and marginal value at risk (VaR) calculations (topic review)

    HI @Apara Here is my XLS that underlies 401.1. I colored the COV(C,P) calculation cell in purple for you. When you ask, "how did you arrive at 0.0194," I'm not totally sure what you mean, sorry. Maybe you want the prior step: COV(C, P) = COV(C, 20%*C + 50%*S + 30%*B) = COV(C, 20%*C) + COV(C, 50%*S) + COV(C, 30%*B) because P = 20%*C + 30%*S + 50%*S; then: COV(C, P) = 20%*COV(C,C) +...
    HI @Apara Here is my XLS that underlies 401.1. I colored the COV(C,P) calculation cell in purple for you. When you ask, "how did you arrive at 0.0194," I'm not totally sure what you mean, sorry. Maybe you want the prior step: COV(C, P) = COV(C, 20%*C + 50%*S + 30%*B) = COV(C, 20%*C) + COV(C, 50%*S) + COV(C, 30%*B) because P = 20%*C + 30%*S + 50%*S; then: COV(C, P) = 20%*COV(C,C) +...
    HI @Apara Here is my XLS that underlies 401.1. I colored the COV(C,P) calculation cell in purple for you. When you ask, "how did you arrive at 0.0194," I'm not totally sure what you mean, sorry. Maybe you want the prior step: COV(C, P) = COV(C, 20%*C + 50%*S + 30%*B) = COV(C, 20%*C) + COV(C,...
    HI @Apara Here is my XLS that underlies 401.1. I colored the COV(C,P) calculation cell in purple for you. When you ask, "how did you arrive at 0.0194," I'm not totally sure what you mean, sorry. ...
    Replies:
    8
    Views:
    351
  28. Nicole Seaman

    PQ-T8 P2.T8.400. Diversified portfolio Value at Risk (VaR) (topic review)

    Awww. Ok! That makes sense. Thanks a lot!
    Awww. Ok! That makes sense. Thanks a lot!
    Awww. Ok! That makes sense. Thanks a lot!
    Awww. Ok! That makes sense. Thanks a lot!
    Replies:
    34
    Views:
    743
  29. Suzanne Evans

    P2.T8.27. More arbitrage strategies (Stowell)

    Thanks David, understood we net off any divs recvd from long vs divs owed on short to broker.
    Thanks David, understood we net off any divs recvd from long vs divs owed on short to broker.
    Thanks David, understood we net off any divs recvd from long vs divs owed on short to broker.
    Thanks David, understood we net off any divs recvd from long vs divs owed on short to broker.
    Replies:
    8
    Views:
    130
  30. David Harper CFA FRM

    P2.T8.26. Arbitrage strategies (Stowell)

    With regards to question 2 i have following doubt :- a) How does she arbitrage in short position in swap and short position in bond. What i understand is she is paying floating rate in swap ( i.e there is outflow of money) and treasury bond she is paying fixed coupon (there is outflow). In both position there is outflow of money. b) what do u mean by the line "The modified duration of each...
    With regards to question 2 i have following doubt :- a) How does she arbitrage in short position in swap and short position in bond. What i understand is she is paying floating rate in swap ( i.e there is outflow of money) and treasury bond she is paying fixed coupon (there is outflow). In both position there is outflow of money. b) what do u mean by the line "The modified duration of each...
    With regards to question 2 i have following doubt :- a) How does she arbitrage in short position in swap and short position in bond. What i understand is she is paying floating rate in swap ( i.e there is outflow of money) and treasury bond she is paying fixed coupon (there is outflow). In both...
    With regards to question 2 i have following doubt :- a) How does she arbitrage in short position in swap and short position in bond. What i understand is she is paying floating rate in swap ( i.e...
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