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Module 34.6 LOS 34.k: Modern Term Structure Theory Differences
Structural Model Structural models of credit risk are based on issuer balance sheets and option pricing theory. The oft-given analogy …
CFA Level II: Derivatives – Option Strategies
A goal of derivative strategies is to modify portfolio risk and return. By combining a bond portfolio with a short …
Module 40.4 & 40.7 LOS 40.k, 40.i: Option Greeks, Synthetic Position, Delta Hedges, Hedge ratio arbitrage
Put-Call Parity and Synthetic Positions Put-call parity is the principle used to generate synthetic longs and shorts. The equation equates …
Module 27.1 – Equity Pricing Models (Ibbotsen-Chen, CAPM, Fama-French), Equity Risk Premiums & Beta Adjustments
Investors generally require a risk-premium in excess of the risk-free rate to justify holding equity securities. The risk premium in …
CFA Level II: Financial Reporting and Analysis – Reporting of Intercorporate Investments
Reporting of Intercorporate Investments Reporting of intercorporate investments depends on the percent of ownership in the investee. There are four …
CFA Level II: Corporate Finance – Project Selection and Risks
Mutually Exclusive Projects with Unequal Lives There are two methods we can use to pick projects when the project lives …
CFA Level II: Economics – Growth Models
Cobb-Douglas Function The Cobb-Douglas Function states that GDP is a function of labor and capital inputs, and their respective productivity. …
CFA Level II: Economics – Exchange Rate Models
Current Account and Exchange Rates Current deficits tend to lead to depreciation of the domestic currency. There are 3 mechanisms …
CFA Level II: Economics – Mark-to-Market Valuation
Mark-to-Market An application of the forward rate valuation equation is the calculating the mark-to-market value of a forward currency contract. …