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All posts by Bill Campbell III, CFA

There are two applications of delta hedging presented in the CFA curriculum: You have an existing position in the underlying security and you want to hedge that position with options. You have an existing position in options and you want to hedge that position either with the underlying security or with options. I’ll cover both […]

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I recently wrote a question for a mock exam about implementation shortfall, and it occurred to me that an article on the subject was long overdue. The curriculum isn’t as clear as it should be on this method of categorizing trading costs.  To correct this . . . well . . . shortfall, I’ll go […]

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Occasionally, you will need to know how to compute free cash flow to equity (FCFE) given free cash flow to the firm (FCFF), or how to compute FCFF given FCFE.  The formulae are relatively easy, but for sake of completeness I thought that I’d write a short article on them Recall that the formula for […]

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The idea of free cash flow is fairly straightforward: it’s cash flow that a company may use in any way it chooses (within reason, of course; for example, we’ll consider only legal uses here).  There are several types of (and, consequently, definitions for) free cash flow.  In this article, I’ll describe one of those: free […]

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The idea of free cash flow is fairly straightforward: it’s cash flow that a company may use in any way it chooses (within reason, of course; for example, we’ll consider only legal uses here).  There are several types of (and, consequently, definitions for) free cash flow.  In this article, I’ll describe one of those: free […]

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The idea of interest rate parity (IRP) is pretty simple.  In a nutshell, it says that if you hold a particular currency – say, GBP – and you want to to make a risk-free investment of that currency, you should earn the risk-free interest rate for that currency for the length of time of your […]

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The idea of roll yield – or roll return, same thing – is relatively straightforward: it’s part of the increase or decrease in the value of your portfolio that arises specifically when you roll over an expiring futures or forward contract into a new contract.  The other part of that increase or decrease is the […]

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Defined benefit pension cost and pension expense – not the same as each other, by the way – are two topics that traditionally vex Level II candidates, and with good reason: They’re fairly complicated They’re usually explained poorly I cannot make them less complicated than they are, but I can do two things: I can make sure not […]

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As a mathematician, I’ve been trained to write and speak (and, consequently, to think) using precise, accurate terminology.  There are, of course, occasions when even mathematicians abbreviate the things that they write or say, but on those occasions: We know that we’re abbreviating, and All mathematicians have agreed to the abbreviations used. As an educator, […]

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If the Level II CFA exam were given as an oral exam, 95% of the candidates would fail. Why? Because they cannot pronounce heteroscedasticity correctly (<het-ter-row-ski-das-tis-sit-ee>, eight syllables), and they cannot pronounce Modigliani correctly (moe-dill-yaw-nee>, four syllables).  Later in this article, we’ll hit upon another: homogeneous (<hoe-moe-gee-nee-us>, five syllables). Fortunately for most Level II candidates, it’s a […]

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