Level III

(Equity) Collar

If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

CFA® Level II Membership, CFA® Level II Derivatives Membership, CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

CFA® Level II Membership, CFA® Level II Derivatives Membership, CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. In particular, if you haven’t read the warning about calculating profit that appears at the end of that article, you should go read it now; the way I’m calculating the profit here is correct, but […]

CFA® Level II Membership, CFA® Level II Derivatives Membership, CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

Option-adjusted spread (OAS) is a yield spread (i.e., an interest rate) that is added to the (1-period forward) interest rate at each node in a binomial tree; specifically, it is the spread that when added to the discount rates results in the tree giving the current market price for a particular bond, after accounting for […]

CFA® Level II Membership, CFA® Level II Fixed Income Membership, CFA® Level III Fixed Income Membership, CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

This is an easy one, fortunately. The definition of LADG is: $LADG\ =\ Dur_{Assets}\ -\ \frac{L}{A}Dur_{Liabilities}$ where: $Dur_{Assets}$: (effective) duration of assets $Dur_{Liabilities}$: (effective) duration of liabilities $L$: market value of liabilities $A$: market value of assets If we multiply both sides of this equation by A, we get: \begin{align}\left(A\right)LADG\ &=\ \left(A\right)Dur_{Assets}\ -\ \left(L\right)Dur_{Liabilities}\\ \\ […]

CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

Essay (Constructed Response) Questions: What’s the Point?

A recent session with one of my tutoring candidates brought to mind an interesting idea that is more than worthy of an article of its own: What’s the point? When you are writing an answer to an AM (constructed response, essay) question, you should ask yourself one simple question: What’s the point of my answer? […]

CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

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

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 […]

CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

Convexity

As we’ve seen in the article on duration, the duration of a bond (whether Macaulay duration, modified duration, or effective duration) is not constant; amongst the factors that cause (all types of) duration to change is the bond’s yield to maturity (YTM). Because duration changes with YTM, using only a bond’s (or bond portfolio’s) modified […]

CFA® Level I Membership, CFA® Level II Membership, CFA® Level III Membership

This will give you access to this and all other articles at that membership level.

The Synthetics: Cash, Equity, and Fixed Income

Creating synthetic cash from an equity portfolio or a fixed income portfolio, creating synthetic equity from cash, and creating synthetic bonds from cash are, in principle, no different than adjusting the value/beta of an equity portfolio, or adjusting the value/duration of a fixed income portfolio, except for that one pesky characteristic of cash: cash always […]