Core says 1.5 million instead of 150,000. Wrong answer given in curriculum ? This is the answer from the core : "Based on the index capitalization of $20 trillion, the size constraint indicates that the smallest stocks in his portfolio will have a minimum market cap of about $3 billion (0.015% × $20Read more
Core says 1.5 million instead of 150,000. Wrong answer given in curriculum ?
This is the answer from the core :
“Based on the index capitalization of $20 trillion, the size constraint indicates that the smallest stocks in his portfolio will have a minimum market cap of about $3 billion (0.015% × $20 trillion). The ADV of the stocks at the lower end of his capitalization constraint would be about $30 million (1% × $3 billion). Because Isaac does not want to represent more than 5% of any security’s ADV, the maximum position size for these smaller-cap stocks is about $1.5 million (5% × $30 million). It appears that Isaac’s strategy will not be constrained until the portfolio reaches about $1 billion in size ($1.5 million ÷ 0.15% = $1 billion). If the level of AUM exceeds $1 billion, his position size constraints will require the portfolio to hold a larger number of smaller-cap positions. There is room to grow this strategy.”
So the maximum position size of the smallest of the securities in index would be 0.015% * 10 = 0.15% ? If that is the case, 0.15% of 100 mil = $150,000. Is this right ? the solution given does not mention anything related to this.
So the maximum position size of the smallest of the securities in index would be 0.015% * 10 = 0.15% ?
If that is the case, 0.15% of 100 mil = $150,000.
Is this right ? the solution given does not mention anything related to this.
Sir, I have the same doubt. The author is very vague about it : "It is often asserted that the correlation between foreign-currency returns and foreign-currency asset returns tends to be greater for fixed-income portfolios than for equity portfolios. This assertion makes intuitive sense: both bondsRead more
Sir, I have the same doubt.
The author is very vague about it : “It is often asserted that the correlation between foreign-currency returns and foreign-currency asset returns tends to be greater for fixed-income portfolios than for equity portfolios. This assertion makes intuitive sense: both bonds and currencies react strongly to movements in interest rates, whereas equities respond more to expected earnings. As a result, the implication is that currency exposures provide little diversification benefit to fixed-income portfolios and that the currency risk should be hedged. In contrast, a better argument can be made for carrying currency exposures in global equity portfolios.”
Haircut is the discount applied to the collateral posted. Say you need to post a margin of 100 crs for entering an OTC derivative position, and 3% is the haircut applicable. So, 100/0.97 = 103.1 crs will need to be posted as collateral. (You'll post 103.1 crs, which will be considered as 103.1*(1-0.Read more
Haircut is the discount applied to the collateral posted.
Say you need to post a margin of 100 crs for entering an OTC derivative position, and 3% is the haircut applicable. So, 100/0.97 = 103.1 crs will need to be posted as collateral. (You’ll post 103.1 crs, which will be considered as 103.1*(1-0.030) = 100 crs)
Agreed. But in Example 8 solution 1, they are deriving that just because the impact in barbell and bullet portfolios is not the same, the shift in non parallel. “Although the portfolios all have the same effective duration, the impact of the shift factor is largest (in absolute value) for the BulletRead more
Agreed.
But in Example 8 solution 1, they are deriving that just because the impact in barbell and bullet portfolios is not the same, the shift in non parallel.
“Although the portfolios all have the same effective duration, the impact of the shift factor is largest (in absolute value) for the Bullet and smallest for the Barbell. This result reflects the fact that actual shifts in the curve are not parallel.”
Why is convexity not considered a potential reason for the mismatch here?
position sizing
Core says 1.5 million instead of 150,000. Wrong answer given in curriculum ? This is the answer from the core : "Based on the index capitalization of $20 trillion, the size constraint indicates that the smallest stocks in his portfolio will have a minimum market cap of about $3 billion (0.015% × $20Read more
Core says 1.5 million instead of 150,000. Wrong answer given in curriculum ?
See lessThis is the answer from the core :
“Based on the index capitalization of $20 trillion, the size constraint indicates that the smallest stocks in his portfolio will have a minimum market cap of about $3 billion (0.015% × $20 trillion). The ADV of the stocks at the lower end of his capitalization constraint would be about $30 million (1% × $3 billion). Because Isaac does not want to represent more than 5% of any security’s ADV, the maximum position size for these smaller-cap stocks is about $1.5 million (5% × $30 million). It appears that Isaac’s strategy will not be constrained until the portfolio reaches about $1 billion in size ($1.5 million ÷ 0.15% = $1 billion). If the level of AUM exceeds $1 billion, his position size constraints will require the portfolio to hold a larger number of smaller-cap positions. There is room to grow this strategy.”
position sizing
So the maximum position size of the smallest of the securities in index would be 0.015% * 10 = 0.15% ? If that is the case, 0.15% of 100 mil = $150,000. Is this right ? the solution given does not mention anything related to this.
So the maximum position size of the smallest of the securities in index would be 0.015% * 10 = 0.15% ?
See lessIf that is the case, 0.15% of 100 mil = $150,000.
Is this right ? the solution given does not mention anything related to this.
CURRENCY RISK MANAGEMENT- End of Chp Questions
It says it is a practice problem, but I don't see it in the curriculum. There are only 24 questions in the end of chapter of CRM. Right ?
It says it is a practice problem, but I don’t see it in the curriculum. There are only 24 questions in the end of chapter of CRM. Right ?
See lessCurrency – IRP vs relative strength approch
Thank You
Thank You
See lessCurrency Risk Management, Positive correlation between FI and Currency.
Sir, I have the same doubt. The author is very vague about it : "It is often asserted that the correlation between foreign-currency returns and foreign-currency asset returns tends to be greater for fixed-income portfolios than for equity portfolios. This assertion makes intuitive sense: both bondsRead more
Sir, I have the same doubt.
See lessThe author is very vague about it : “It is often asserted that the correlation between foreign-currency returns and foreign-currency asset returns tends to be greater for fixed-income portfolios than for equity portfolios. This assertion makes intuitive sense: both bonds and currencies react strongly to movements in interest rates, whereas equities respond more to expected earnings. As a result, the implication is that currency exposures provide little diversification benefit to fixed-income portfolios and that the currency risk should be hedged. In contrast, a better argument can be made for carrying currency exposures in global equity portfolios.”
Concept of Hair Cutting
Haircut is the discount applied to the collateral posted. Say you need to post a margin of 100 crs for entering an OTC derivative position, and 3% is the haircut applicable. So, 100/0.97 = 103.1 crs will need to be posted as collateral. (You'll post 103.1 crs, which will be considered as 103.1*(1-0.Read more
Haircut is the discount applied to the collateral posted.
Say you need to post a margin of 100 crs for entering an OTC derivative position, and 3% is the haircut applicable. So, 100/0.97 = 103.1 crs will need to be posted as collateral. (You’ll post 103.1 crs, which will be considered as 103.1*(1-0.030) = 100 crs)
See lessYield curve strategies – bullet and barbell
Agreed. But in Example 8 solution 1, they are deriving that just because the impact in barbell and bullet portfolios is not the same, the shift in non parallel. “Although the portfolios all have the same effective duration, the impact of the shift factor is largest (in absolute value) for the BulletRead more
Agreed.
See lessBut in Example 8 solution 1, they are deriving that just because the impact in barbell and bullet portfolios is not the same, the shift in non parallel.
“Although the portfolios all have the same effective duration, the impact of the shift factor is largest (in absolute value) for the Bullet and smallest for the Barbell. This result reflects the fact that actual shifts in the curve are not parallel.”
Why is convexity not considered a potential reason for the mismatch here?
CFA L3 – Taxes
Okay, thank you
Okay, thank you
See less