Interest Rate Caps and Floors
Interest rate caps and floors are, essentially, collections of interest rate options: each option has a positive payoff when it expires in the money and a zero payoff when it expires out of the money....
View ArticleOption Strategies
Candidates seem to have a tremendously difficult time with option strategies: how to construct various spreads, how to compute the payoffs on those spreads, how to compute the profits on those...
View ArticleBull Spread
If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. Payoff Diagram To illustrate building a bull spread with options, it’s best to have a...
View ArticleBear Spread
If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. Payoff Diagram To illustrate building a bear spread with options, let’s use a specific...
View ArticleButterfly Spread
If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. There are two types of butterfly spread: a long butterfly and a short butterfly. The...
View Article(Equity) Collar
If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. Payoff Diagram The payoff diagram for an equity collar looks exactly like the the...
View ArticleStraddle
If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. There are two types of straddle: a long straddle and a short straddle. The current CFA...
View ArticleStrangle
If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. There are two types of strangle: a long strangle and a short strangle. The current CFA...
View ArticleBox Spread
If you haven’t read the article on option strategies in general, that’s a good place to start, then return here. A box spread is a combination of a bull spread and a bear spread; if you haven’t read...
View ArticleMore Currency Exchange Rate Stuff
I came across some topics in currency exchange at Level III that seemed to be vexing some candidates, so I thought that it warranted an article. This will be a catch-all: anything on currency...
View ArticleEquity Indices
An equity index is nothing more nor less than a hypothetical stock portfolio. The index pretends to invest in a bunch of stocks, and tracks their performance over time. It’s the sort of thing that...
View ArticlePrepaid Variable Forward (PVF)
A prepaid variable forward (PVF) is a hybrid security that is quite useful in monetizing a concentrated position in publicly traded stock. In essence, a PVF is a combination of an equity collar and a...
View ArticleClassical Immunization
The idea of immunization is fairly straightforward: you have a known set of liabilities due at known future dates, and you want to create a portfolio that will fund those liabilities with a minimum of...
View ArticleContingent Immunization
The idea of immunization is fairly straightforward: you have a known set of liabilities due at known future dates, and you want to create a portfolio that will fund those liabilities with a minimum of...
View ArticleLinear Interpolation/Extrapolation
After reading a number of posts on AnalystForum in which candidates have had difficulty with linear interpolation or extrapolation, I figured it was time to write an article on the subject. I’ve...
View ArticleCross Hedge vs. Proxy Hedge
Level III candidates often confuse cross hedges and proxy hedges. This isn’t their fault: one of the readings makes a distinction between these, while another claims that they’re the same (though it...
View ArticleLevel I Proposed Articles
Here’s a list of the articles I have planned for Level I, but haven’t written and posted yet. There’s some good stuff coming: Binomial trees NPV & IRR Pictures (in Economics) Substitution effect...
View ArticleLevel II Proposed Articles
Here’s a list of the articles I have planned for Level II, but haven’t written and posted yet. There’s some good stuff coming: Research Objectivity Standards F-statistic Time series Simple regression...
View ArticleLevel III Proposed Articles
Here’s a list of the articles I have planned for Level III, but haven’t written and posted yet. There’s some good stuff coming: Asset Managers’ Code Decision theory Bounded rationality Prospect theory...
View ArticleBenchmarks
I was recently writing a comparison of indices and benchmarks, and it occurred to me that an article on benchmarks might be useful, so here it is. This is an easy one. The main points of interest to...
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