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All posts for the month July, 2014

Adjusting the Allocation of an Equity/Fixed Income Portfolio using Equity/Bond Futures

Posted by Bill Campbell III, CFA on July 9, 2014
Posted in: Level III Derivatives.

Adjusting Allocation Only Adjusting the allocation of a portfolio that comprises both equity and fixed income is nothing more than a combination of: Adjusting the value of the equity portion of the portfolio by a given amount (up or down), and Adjusting the value of the fixed income portion of the portfolio by that same […]

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Durbin-Watson Statistic (Test)

Posted by Bill Campbell III, CFA on July 3, 2014
Posted in: Level II Quantitative Methods.

The Durbin-Watson (DW) statistic is used in a test for serial correlation of residuals (i.e., error terms) in several types of regression models: Simple regression models Multiple regression models Time-series trend models DW is not appropriate for testing for serial correlation of residuals in autoregressive (AR) models.  The CFA curriculum doesn’t specify exactly why DW […]

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Valuing Equity Swaps

Posted by Bill Campbell III, CFA on July 2, 2014
Posted in: Level II Derivatives.

Equity swaps are just as easy to value as plain vanilla interest rate swaps; once again, as with all derivatives, the formula for the value is: \[Value\ =\ PV(what\ you\ will\ receive)\ –\ PV(what\ you\ will\ pay)\] If one leg is a fixed or floating rate, it is valued exactly as described for plain vanilla […]

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Pricing Equity Swaps

Posted by Bill Campbell III, CFA on July 1, 2014
Posted in: Level II Derivatives.

Remember that the price of a swap is the fixed rate on the swap.  An equity swap can take many forms: The equity side can pay the return on a single stock, on a portfolio of stocks, or on an equity index. The equity side can pay only the price appreciation on the stock, portfolio, […]

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