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# Category: Level III

## Yield Curve Strategies – Dynamic Yield Curve

Making Money with Bonds In the article on yield curve strategies in general, I mentioned the two broad ways to make money with bonds: Coupons (more generally, to incorporate synthetic strategies using, for example, swaps: interest payments) Price changes The curriculum breaks down the expected return on a bond in this manner: \begin{align}E\left(R\right) &≈ Coupon\…

## Yield Curve Strategies – Static Yield Curve

Making Money with Bonds In the article on yield curve strategies in general, I mentioned the two broad ways to make money with bonds: Coupons (more generally, to incorporate synthetic strategies using, for example, swaps: interest payments) Price changes The curriculum breaks down the expected return on a bond in this manner: \begin{align}E\left(R\right) &≈ Coupon\…

## Short Butterfly Spread

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…

## Short Strangle

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…

## Inverse (Short) Straddle

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…

## Yield Curve Strategies – General

In 2019, CFA Institute revised all of their Level III Fixed Income readings, and, in particular, came up with a 10-page blue box example that was absurdly complex, which I simplified here. That example’s gone. Fortunately. (In point of fact, I’m sorry that the idea is gone from the curriculum, because it was interesting and…

## Equity Return Attribution

By “return attribution” we mean breaking down the realized return on a portfolio (in this case, specifically an equity portfolio) into a number of practically significant pieces; in other words, it’s the analysis of the realized return. In the CFA curriculum, there are two flavors of equity return attribution: macro attribution and micro attribution. I’ll…

## Correlation . . . of, What, Exactly?

I already wrote an article on the tendency of people in finance to be sloppy in the language they use; you’ll find it here. The purpose of this article is to expand on one specific area in which the language of finance people is particularly sloppy: correlation. The problem, as I see it, is that…

## Option Greeks

The option Greeks – delta, gamma, theta, vega, and rho – refer to sensitivities of the price of an option to various underlying variables. Here, we’ll be talking about options on stocks, though the discussion would be equally appropriate for options on, say, commodities. It would not be appropriate for a discussion of options on…

## FX Swaps

Let’s start by addressing the elephant in the room: the name “FX swap” is just plain weird. This isn’t a swap in any normal sense of the word swap: it isn’t an exchange of cash flows at some predetermined future date(s). An FX swap is nothing more nor less than rolling over an expiring currency…