A list of lists, some additional views needed

Hi guys, I have been making a list of lists to memorize, and I need a little help with a few of them. Please correct or add to any lists with deficiencies, and help build the lists that are blank. If any of the lists are no longer in the LOS, point that out as well (I got the backbone of some of these lists from old, possibly deprecated notes on this forum and the web). I hope what I already have is helpful to others, and in exchange you can contribute the things mentioned.

A) Basic sources of hedging error

  1. Forecast of the basis at the time the hedge is lifted

  2. Estimated durations

  3. Estimated Yield Beta

B) Advantages to using futures over cash market instruments

  1. More liquid

  2. Less expensive

  3. Easier to short

  4. ?

C) Two-bond Hedge Assumptions

  1. Reasonable yield-curve shifts

  2. Adequate model to predict prepayments given yield changes

  3. Reliable assumptions on simulation

  4. Can predict price changes given yield changes

  5. ?

D) To reduce credit risk in a repo

  1. Require physical delivery of the collateral

  2. Use high-quality collateral

  3. Deposit collateral in a custodial account

E) Factors used to determine long-run inflation (5 bullets?)

F) Reasons Currency Risk Isn’t too Significant

  1. Currency risk is only about half that of foreign stock/bond risk

  2. Foreign asset and currency risk are not additive

  3. Currency risk can be hedged

  4. Currency risk can be diversified away in a portfolio of many assets

  5. PPP holds in the long-term

G) Risk Management is a Continual Process of:

  1. Identifying and measuring specific risk exposures

  2. Setting specific risk tolerance levels

  3. Monitoring risk exposures and taking corrective action

  4. Reporting risk exposures to stakeholders

H) Three Factors Limiting Investment in Emerging Markets ?

I) Risks Unique to Emerging Markets

  1. Unstable social and political environment

  2. Under-developed infrastructure

  3. Poor educational systems

  4. Corrupt governments

J) Barriers to International Investment

  1. Restrictions on stock held by foreigners

  2. Low float because government is primary owner of stock

  3. Repatriation of invested capital is restricted, especially during a crisis

  4. Discriminatory taxes applied to foreigners

  5. Only authorized investors can invest in local firms

  6. Low liquidity

K) Correlations in world markets have increased over time due to:

  1. Free trade among nations has increased

  2. Capital markets are integrating

  3. Corporations have increased foreign operations and M&A

  4. Capital mobility has increased

I really appreciate your comments.


Two-bond Hedge Assumptions: 5) Average price change method is a good approximation. [This won’t work for cuspy bonds, which need two options to hedge]

That’s a good one, thanks.

I’m not sure whether (H) is important-- it seems redundant to (I). And I cannot figure out whether (E) is still in the curriculumn.

Properly defined asset classes

  1. SImilar descriptive and statistical properties

  2. Low correlations

  3. Contains most types of assets classes (mutually exhastive)

  4. An asset doesnt fall into more than one class (mutually exclusive)

  5. Contain a large number of liquid securities