Feel gripy this AM: 1) Ethics. If you can study and study for a test and still get 30% of the questions wrong, what good is this ethical code? IMHO, laws can be arbitrarily complicated because we hae lawyers to help us out. Ethics needs to be simple or it’s worthless. 2) GIPS Beyond the unfortunate name (a homophone for a word that means “cheats”), this is shameless advertising. GIPS is not suitable for many investment companies (the entire managed futures business, for example). Presenting GIPS with the same level of objectivity as bond valuation really irks me. 3) Purchase vs pooling I thought this was going to be gone from the curriculum years ago. It’s dead, Jim. It’s amazing to me that an accounting standard goes away but CFAI thinks it makes such nice problems that they keep it in the curriculum. 4) Amerocentrism I’m as Amerocentric as the next guy (well, CFA_Halifax is more Amerocentric than me and he’s Canadian). Studying things about American court decisions and American tax law seems really stupid in a global test. 5) Statistics I’m a statistician. I’ve never seen a situation in finance in which I think hypothesis testing would be useful. Economists need to learn it to understand empirical economics but that’s too academic for anything a charterholder is likely to do. To make things worse, everything Schweser writes about statistics is wrong. 6) Risk-neutral valuation I can’t think of a more interesting and important idea in finance. You can be a charterholder and have no idea what that is. I’ve had people come to me and say “I just bought a drop-out reverse Napolean cliquet on the S&P because I think it’s underpriced” and their reason for the underpriced thing is something like “because it seems underpriced”. When I tell them that there is some guy downstairs of the person who sold it to him who wrote down a pde, got his computer to solve it, presented the hedging strategy, and then the bank priced it at a 75% premium, they look mystified. 7) Credit What’s the 5-yr default probability on B debt? What does the word “subordinated” mean? What happens if you own a bond that defaults? The world falls apart on credit problems and there is almost nothing in the CFA curriculum about credit (except some good stuff about CDS in LII and credit options in LIII). Please add to list, criticize my selections as stupid, etc…
- Reading the analystforum.com and hear about people bitching about the exam
9) The proctors on the CFA exam are ##@@holes, they wouldn’t allow me to bring an umbrella into the examination room 
10) The exam is in english and is not fair to foreigners 11) It’s a 6 hour exam and they only give level 2 and 3, once a year. Why can’t they make it a prometric test. 12) Why the hell do I have to calculate the value of futures if I’m never going to use them?
JoeyDVivre Wrote: ------------------------------------------------------- > Feel gripy this AM: > > 1) Ethics. > If you can study and study for a test and still > get 30% of the questions wrong, what good is this > ethical code? IMHO, laws can be arbitrarily > complicated because we hae lawyers to help us out. > Ethics needs to be simple or it’s worthless. > > 2) GIPS > Beyond the unfortunate name (a homophone for a > word that means “cheats”), this is shameless > advertising. GIPS is not suitable for many > investment companies (the entire managed futures > business, for example). Presenting GIPS with the > same level of objectivity as bond valuation really > irks me. > > 3) Purchase vs pooling > I thought this was going to be gone from the > curriculum years ago. It’s dead, Jim. It’s > amazing to me that an accounting standard goes > away but CFAI thinks it makes such nice problems > that they keep it in the curriculum. > > 4) Amerocentrism > I’m as Amerocentric as the next guy (well, > CFA_Halifax is more Amerocentric than me and he’s > Canadian). Studying things about American court > decisions and American tax law seems really stupid > in a global test. > > 5) Statistics > I’m a statistician. I’ve never seen a situation > in finance in which I think hypothesis testing > would be useful. Economists need to learn it to > understand empirical economics but that’s too > academic for anything a charterholder is likely to > do. To make things worse, everything Schweser > writes about statistics is wrong. > > 6) Risk-neutral valuation > I can’t think of a more interesting and important > idea in finance. You can be a charterholder and > have no idea what that is. I’ve had people come > to me and say “I just bought a drop-out reverse > Napolean cliquet on the S&P because I think it’s > underpriced” and their reason for the underpriced > thing is something like “because it seems > underpriced”. When I tell them that there is some > guy downstairs of the person who sold it to him > who wrote down a pde, got his computer to solve > it, presented the hedging strategy, and then the > bank priced it at a 75% premium, they look > mystified. > > 7) Credit > What’s the 5-yr default probability on B debt? > What does the word “subordinated” mean? What > happens if you own a bond that defaults? The world > falls apart on credit problems and there is almost > nothing in the CFA curriculum about credit (except > some good stuff about CDS in LII and credit > options in LIII). > > Please add to list, criticize my selections as > stupid, etc… Before starting…if I make a complain against the CFA…I breach the Standards of not?
A man stands in the middle of the road and stares at the empty sky without moving or saying a word. People start gathering around him and stare at the sky too, thinking there is something he is looking at which is important. As time passes the crowd starts building. The man now quietly walks away, but the ever increasing crowd is still staring at the empty sky. Am part of the crowd, and am still staring at the empty sky with a hope to see what others have or could have seen.
A little boy tugs at his grandmother’s skirt. “Grandma, what are you looking at?” But she just stares into space, squinting her eyes. The little boy squints his eyes skyward too in hopes that maybe he can see what people are looking at, understand what it means to belong to the company of adults. The little boy’s eyes are better than most. The sun is in his eyes but he see farther and better. At last he sees, and his eyes tear up with disappointment. He tugs at his Grandma’s skirt again and looks at the ground. “Grandma, it’s just Joey peeing off a building”
“, everything Schweser writes about statistics is wrong” How so? Doesn’t Schweser simplify the CFAI Text? If Schweser is incorrect, wouldn’t the curriculm be incorrect? I vote Joey makes his own designation!
The curriculum does a much better job on statistics than Schweser does.
JoeyDVivre Wrote: ------------------------------------------------------- > Feel gripy this AM: > > 1) Ethics. - Generally True >> > 2) GIPS - Very Trure > 3) Purchase vs pooling - Agreed, outdated. > > 4) Amerocentrism - Agree on all points. I’m a pro-American Internationalist! It bugs me that they talk about US regulations so much…as it seems to be an unneccessary burden on candidate abroad who actually think they will test this, when we know they never will. In fairness, the currency stuff f*s up Americans alot I think… > I’m as Amerocentric as the next guy (well, > CFA_Halifax is more Amerocentric than me and he’s > Canadian). Studying things about American court > decisions and American tax law seems really stupid > in a global test. > 5) Statistics - Agree > 6) Risk-neutral valuation - Very much agree > 7) Credit - I hope in time they will reflect this stuff, it (the ciriculum and LOS’) is generally sticky >
Agree with those points Joey. I would add: - economics for similar reasons as ethics. It is fine for proper essays, but it is not right or wrong in my opinion. e.g. regulation - LIFO accounting. Cooked up in the US in the 1980s for tax reasons and was about half the level 1 curriculm when I did it. I even met a KPMG partner in the US, who in 20 years, had never audited a firm using it. - pro-US. Adding to the point you made above, callable bonds, US mortgage agencies (Someone Mae), LIFO accounting are all US only things. - the excessively free market approach.
Good point on the free market stuff. As pro-market as I am, it does feel at times like the ciric reads a bit like a WSJ or Economist editorial page…
JoeyDVivre Wrote: ------------------------------------------------------- > A little boy tugs at his grandmother’s skirt. > “Grandma, what are you looking at?” But she just > stares into space, squinting her eyes. The little > boy squints his eyes skyward too in hopes that > maybe he can see what people are looking at, > understand what it means to belong to the company > of adults. > > The little boy’s eyes are better than most. The > sun is in his eyes but he see farther and better. > At last he sees, and his eyes tear up with > disappointment. He tugs at his Grandma’s skirt > again and looks at the ground. “Grandma, it’s > just Joey peeing off a building” bland american humour:)
chuckles…
TheBigBean Wrote: ------------------------------------------------------- > - LIFO accounting. Cooked up in the US in the > 1980s for tax reasons and was about half the level > 1 curriculm when I did it. I even met a KPMG > partner in the US, who in 20 years, had never > audited a firm using it. I don’t know about that. A web search turns up http://www.mdm.com/stories/liforepeal.html containing: "The National Association of Wholesaler-Distributors estimates that 78 billion in wholesale distribution inventory is currently classified under LIFO. " That's a reasonable amount of - somewhere near the entire GDP of Sri Lanka.
- Risk-neutral valuation I can’t think of a more interesting and important idea in finance. You can be a charterholder and have no idea what that is. I’ve had people come to me and say “I just bought a drop-out reverse Napolean cliquet on the S&P because I think it’s underpriced” and their reason for the underpriced thing is something like “because it seems underpriced”. When I tell them that there is some guy downstairs of the person who sold it to him who wrote down a pde, got his computer to solve it, presented the hedging strategy, and then the bank priced it at a 75% premium, they look mystified. Risk-neutral is too difficult to understand. Many people misuse it. In your example, that guy could understand the thing without “risk-neutral”.
Risk neutral is only too difficult to understand because wannabes start spouting off about Girsanov’s theorem and such the moment you mention it. I guarantee I could write something for CFAI that is no more difficult that purchase vs pooling about risk neutral valuation that would lead everyone to the notion that there is a general way of pricing all these weird derivatives using this neat technique. I’ll bet Don Chance has already done it.
JoeyDVivre Wrote: ------------------------------------------------------- > TheBigBean Wrote: > -------------------------------------------------- > ----- > > - LIFO accounting. Cooked up in the US in the > > 1980s for tax reasons and was about half the > level > > 1 curriculm when I did it. I even met a KPMG > > partner in the US, who in 20 years, had never > > audited a firm using it. > > > I don’t know about that. A web search turns up > http://www.mdm.com/stories/liforepeal.html > containing: > "The National Association of > Wholesaler-Distributors estimates that 78 billion \> in wholesale distribution inventory is currently \> classified under LIFO. " That's a reasonable \> amount of - somewhere near the entire GDP of Sri > Lanka. I guess $78 billion is a reasonable amount, but it would be far more meaningful as a percentage of total inventory. For example it would not suprise me if this is less than 1% of total US inventory and less than 10bps of the world. In that case it should not require the amount of CFA exposure it gets.
I don’t know about inventory but that 80B of inventory is out of $4T in sales so about 2% of sales. I hear your point…
So, Joey, what reading do you recommend as a primer on risk neutral valuation and strategies? I read the chapter in Hull’s book, it was okay, but I still felt like I didn’t get the genesis of what risk neutral valuation is really all about.
Why wouldnt you promote the ideas of free markets?
JoeyDVivre Wrote: ------------------------------------------------------- > Risk neutral is only too difficult to understand > because wannabes start spouting off about > Girsanov’s theorem and such the moment you mention > it. I guarantee I could write something for CFAI > that is no more difficult that purchase vs pooling > about risk neutral valuation that would lead > everyone to the notion that there is a general way > of pricing all these weird derivatives using this > neat technique. I’ll bet Don Chance has already > done it. Risk neutral can be understood without Girsanov’s thm, unless you want something rigorous and continuous. Risk neutral can be illustrated through a simple binomial framework. The problem though, is that people fail to understand that risk neutral (probability) is just a by-product of no arbitrage pricing. I said many people misuse it and the evidence is that many people start to price exotic options by starting with a risk neutral dynamics of stock prices but when they come up with a price, they don’t provide a replicating portfolio, which is very dangerous.