A-total factor productivity B-cost basis(0-1) C-call,coupon,correlation(rho),convenience yield D-duration,delta,lease rate E-effective*, error item F-futures/forward price, forward exchange rate G-growth rate H-hedge ratio,H-model,human capital I-inflation, impl shortfall J-index K-required return of equity, capital investment L-liability, labor force, LIBOR M-futures multiplier N-number of contracts O-options, zero? P-portfolio/position, put,commodity price Q-tobin’s q R-return,interest rate,discount rate S-stock price, spot exchange rate T-tax, time U-utility V-value W-weight X-exercise price Y-yield, GDP in CME Z-z-value or z-score,discount factor alpha(a)-excess return beta(b)-market risk exposure delta-delta hedge, lease rate gamma-change of delta lamda-storage cost sigma-standard deviation
Options’ Premiums: At the beginning, If you paid the premium Premium is the breakeven price(holding stock), or Premium is the max loss(no stock) Else if you collected the premium Premium is the max profit; Here is the list of premium: Covered call: S0-C0 Protective put:S0+P0 Collar:S0+(P0-C0) Bull Call:Cl0-Ch0 Bear Put:Ph0-Pl0 Butterfly Call:Cl0+Ch0-2*Cm0 Butterfly Put:Pl0+Ph0-2*Pm0 Long Straddle:C0+P0 PS. 1. Box Spread is special. Its profit = Xh-Xl-premium. 2.The premium of Bear Call = The premium of Bull Call.
SkipE99 Wrote: ------------------------------------------------------- > deriv what the hell is that? hahaha, it is rainman-esque
Back to normal after June 4. Before that day, we have no life.
What will the CFA world look like if No Futures and Options?
Effective Day:D Effective annual after-tax return:=R*(1-Pi*Ti-Pd*Td-Pcg*Tcg) Effective capital gains tax rate:=Tcg*(1-Pi-Pd-Pcg)/(1-Pi*Ti-Pd*Td-Pcg*Tcg) Effective Tax Rate of double taxation methods: T(exempt)=Ts; T(credit)=max(Tr, Ts); T(deduction)=Ts+Tr-Ts*Tr Accrual Equivalent Return: PV*(1+Rae)^n=FV, Rae=? Accrual Equivalent Tax Rates: r*(1-Tae)=Rae, Tae=? Effective Duration: DD=-P*D*0.01 Effective Annual Rate: F0=S*[(1+r)/(1+delta)]^T, delta is the lease rate. Effective Beta:=%dVp/%dVm Effective Annual Borrowing Rate: (1+EAR)^(T/365)=(NP+Int-Ct)/(NP-C1) Effective Annual Lending Rate: (1+EAR)^(T/365)=(NP+Int+Pt)/(NP+P1) Effective Spread for buy order:=2*(S-MQ), MQ=(b+a)/2 Effective Spread for sellorder:=2*(MQ-S), MQ=(b+a)/2 Efficient Frontier: none. Information Coefficient: IR.=IC*sqrt(IB) Corr Coefficient: RPi=SDi*Rho(i,M)*(Sharpe Ratio).
I just keep it up and active…many goodies in this thread. Thanks.
contingent immunizaton: 1)Current immunization rate -Safety net return 2) RTV: NP(1 + safety net return) (supscript: strategy horizon*2] 3)RIV: RTB/(1 + Current Immunization Rate )[supscript: strategy horizon*2] 4) N= bond remaining term @ end of horizon *2 i/y=given/2 PV=x Pmt= coup/2 FV=par 5) RTV/(1+new given rate/2)[supscript: strategy horizon*2] 4)-5)= if negative then immunize
L3 is about R - the return. No way to have it covered in one day, so let’s slice 'n dice it. Intl Bond Investing: R(u,d) = (1+Rl)(1+s)-1 = Rl + s, s is currency return. Rh = Rl + fp = Rl + (rDC - rFC) = rDC + (Rl - rFC) = domestic RFR + excess return in local currency. Currency RM: Rh = R(u,d) - R(F) R(u,d) = (Vt*St)/(V0*S0)-1 R(F) = (Ft-F0)/S0
Deriv, youre formulas are confusing the heck out of me kid.
Updated for Hedged Returns. Intl Bond Investing: R(u,d) ~= Rl + s Rh = Rl + fp = Rl + (rDC - rFC) = rDC + (Rl - rFC) = Domestic RFR + Excess Return in local currency. – =~ Approximately equal (¡Ö can’t display, I use it as an alternative.:D) – R(u,d) is unhedged return in domestic currency – Rh is hedged return in domestic currency – Rl is bond return in local currency – s is currency return. – fp is forward premium, rDC is domestic RFR, rFC is foreign RFR Currency RM: Rh = R(u,d) - R(F) R(u,d) = (Vt*St-V0*S0)/(V0*S0) R(F) = (Ft-F0)/S0 – Rh is hedged return in domestic currency – R(u,d) is unhedged return in domestic currency – R(F) is futures price movement – Vt is the portfolio value at time t – V0 is the portfolio value at time 0 – St is spot exchange rate at time t – S0 is spot exchange rate at time 0 – Ft is futures [exchange] rate at time t – F0 is futures [exchange] rate at time 0
R(u,d) in two formulas are the same thing, but in two different forms(in SS10+SS15). R(u,d) is also in SS08, where it shows something as follows: R(u,d)=(Vt*St-V0*S0)/(V0*S0)=Rl+s+Rl*s
Horizon Yield/Total return for bond… 1)N= (bond @ end of horizon)*2 i/y=new/2, pv=compute, pmt=coup/2, fv=par 2) coup + coup(1=reinvestment rate/2) 3) n= horizon period*2, i/y=X, pv=compute, pmt=0, fv=1)+2) 4) bey = i/y*2, 4) EAR (1+i/y)^2
In SS17, R(u,d) is presented in a different form. But it’s still the same thing. R(u,d,j)=pj+dj+cj – R(u,d,j) is Total return in Base Currency for asset j; It is the unhedged return in domestic currency fro asset j. – pj is the Capital Gain Component: capital gain in percentage – dj is Yield Component: yield in percentage – cj is Currency Component: the return due to currency movement cj=sj(1+pj+dj) – cj the return due to currency movement. – sj is the percentage exchange rate movement For a whole portfolio: R(u,d)=sum(wj*pj)+sum(wj*dj)+sum(wj*cj) R(u,d)=sum(wj*Ij)+sum(wj*(pj-Ij))+sum(wj*dj)+sum(wj*cj) – wj is the weight of segment j in the total portfolio at the start of the period. – Ij is the return, in local currency, of the market index. I believe the last and longest “Asset Allocation” formula for performance attribution has been posted on this thread. I need to study on it.
Your notation confuses the hell out of me.
bpdulog, my friend. Are you using Schweser notes? The above “performance attribution” formula was copied directly from the curriculum(SS17). I used the Schweser notation for the attribution before, but I think CFAI’s is easier to understand and write. I just looked at the 2007, Q9, which Schweser mentioned in the notes. But I think we may not need to memorize the long formula to solve it. Actually, if I use the memorized formula, I may have to spend time on mapping those variables properly, and for example, set portfolio yield in local currency = 0. What’s your thought?
IMHO, the purpose of this thread is to minimize the need to memorize the formulas for the exam. Regarding to options, we need to know at least what it’s. You may like to describe it in words, but I like the formulas – both are the same. Options Values at Expiration(equivalent to the definition): Covered call: St-max(0,St-X) Protective put: St+max(0, X-St) Collar: St-max(0, St-Xh)+max(0, Xl-St) Bull Call: max(0, St-Xl)-max(0, St-Xh) Bear Put: max(0, Xh-St)-max(0, Xl-St) Butterfly Call: max(0, St-Xl) -2*max(0, St-Xm)+max(0, St-Xh) Long Straddle: max(0, St-X) + max(0, X-St) Box Spread: Xh - Xl ---- To determine whether a box spread is undervalued or overvalued, we discount the “value at expiration”.
hey deriv, you keep doing what you doing baby. its helping me. just make sure you dont spend TOO much time on this forum. it can be more harmful than hurtful at time if you are not careful. i learned that the hard way.
Thanks, SkipE99. Please point out if my formulas are wrong…I found this thread’s helping me too, whether who posted the formula. They are all from curriculum. Actually, some formulas, especially those options/premiums, are from what I learned from you guys. No more fear for options. Got what you said, buddy…our goal is to pass the exam!
Execution of Portfolio Decisions – Reading 44.(SS16) IS(implementation shortfall) = (gain on paper portfolio - gain on real portfolio)/(initial investment in paper portfolio) VWAP is a price, IS is a percentage. Both are a measure of transaction cost. “Surprisingly”, both become algorithmic trading strategies. One is simple logical participation strategy, the other is IS strategy. VWAP can be gamed, so it’s not informative for traders who dominates. It does not account for delayed cost and missed trade opportunity. It’s not senstive to trade size or market conditions. (VWAP works best for small trades in a non-trending markets) So we have IS, which solves the problem of VWAP. But it’s unfamiliar to traders(doubt it), and requires considerable data and analysis. Overall, Is for small, urgent trade, which is usually traded early in the day to minimize opportunity cost. For illiquid stock and large trade, use broker. What’s the best execution? It depends on the investment decision, circumstance and etc. Regarding to ethics in trading. 1) fallen commission: traders shift cost to implicit cost. 2) electronic trading provide more anonymity: buy-side and sell-side traders become more adversarial. More on Reading 44. 1) When is quoted spread = effective spread? 2) Any price improvement of a trade? 3) How to game on opening/closing price, effective spread, VWAP? 4) Trade 200% of the value of portfolio =.= 2 buys + 2 sells for each stock. 5) Price Benchmark can be chosen by the trader. 6) Estimated [implicit] Transaction Cost: =n*(P-B) for a buy =n*(B-P) for a sell. 6) is like the implementation shortfall excluding execution cost.