Level III

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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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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A few years ago CFA Institute added a new reading on tax regimes to the Level III curriculum, and it caused quite a stir: apparently they had a large question about taxes on that first year’s Level III exam, and few candidates were prepared for it. I want you to be prepared for it. And […]

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I was recently writing a comparison of indices and benchmarks, and it occurred to me that an article on benchmarks might be useful, so here it is.  This is an easy one. The main points of interest to Level III CFA candidates are: How are benchmarks used? What characteristics should a benchmark have? What are […]

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If you were to ask (a random sample of) 100 financial advisors what the term “rebalance” means, I wouldn’t be surprised if 95 of them described it as “returning the portfolio to its original weights in each asset class”, or something tantamount to that. In other words, the investing world overwhelmingly equates rebalancing with a […]

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Level III candidates often confuse cross hedges and proxy hedges.  This isn’t their fault: one of the readings makes a distinction between these, while another claims that they’re the same (though it includes a footnote that says that they’re different). Sigh. Suppose that your domestic currency is the Canadian dollar (CAD), and that you have […]

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After reading a number of posts on AnalystForum in which candidates have had difficulty with linear interpolation or extrapolation, I figured it was time to write an article on the subject.  I’ve tried to think where it applies to the Level I curriculum, but so far I’ve failed.  I’ll try harder.  At Level II it […]

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The idea of immunization is fairly straightforward: you have a known set of liabilities due at known future dates, and you want to create a portfolio that will fund those liabilities with a minimum of risk, at a reasonable price.  Two types of immunization are discussed in the CFA curriculum: classical immunization and contingent immunization.  […]

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The idea of immunization is fairly straightforward: you have a known set of liabilities due at known future dates, and you want to create a portfolio that will fund those liabilities with a minimum of risk, at a reasonable price.  Two types of immunization are discussed in the CFA curriculum: classical immunization and contingent immunization.  […]

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A prepaid variable forward (PVF) is a hybrid security that is quite useful in monetizing a concentrated position in publicly traded stock.  In essence, a PVF is a combination of an equity collar and a loan.  A simple example will make it clear how a PVF works, and how it can be used to monetize […]

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