Curveballs + things often overlooked

CFA Level III
#61

  • The delta underestimates the effects of increases in the underlying and overestimates the effects of decreases in the underlying. (In other word, detla tends to be pessmestic)

  • Delta hedging’s benchmark value (Portfolio value * e ^(risk-free rate/365))

#62

VAR extenstion:

CVAR

CFAR

EAR

TVAR

#63

IDIMT

inflation

default

illiquidity

maturity

tax

#64

A reverse butterfly spread is also called a sandwich spread.

#65

M^2 in fixed income: It can be used as a measure of immunization risk i.e. when it is small, the exposure of the portfolio to any interest rate change is small.

#66

Sounds interesting. Could you elaborate this a bit more.

#67

Mating a Bull and a Bear gives you a Butterfly

#68

Maturity variance is the variance of the differences in the maturities of the bonds used in the immunization strategy and the maturity date of the liability. For example, if all the bonds have the same maturity date as the liability, M2 is zero. As the dispersion of the maturity dates increases, M2 increases.

#69

turning a butterfly upside down gives you a sandwhich

#70
  • modified Dietz method (GIPS) - Simple logical participation strategies (trading)
#71

Tax regime: Heavy dividend, heavy capital gain…

#72

It gives you a box…

#73

…depending on your strike prices

#74