Fixed-Income Active Management: Credit Strategies / All lessons LOSs list Reading 25 in the overview, but 24 throughout the lesson text.. Fixed-Income Active Management: Credit Strateg
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Change Log for CFA 2019 Level III
02/22/2019 SS5 Private Wealth Management (1) / R11 Taxes and Private Wealth
Management in a Global Context / Lesson 2 / Study Text First equation under 2.1.3.1.1 Accrual Equivalent Return should read:
03/07/2019 SS12 Fixed-Income Portfolio Management (2) / R25 Fixed-Income Active
Management: Credit Strategies / All lessons LOSs list Reading 25 in the overview, but 24 throughout the lesson text Please note that all LOSs throughout the text should also correlate to
Reading 25 (not R24)
03/07/2019 SS12 Fixed-Income Portfolio Management (2) / R25 Fixed-Income Active
Management: Credit Strategies / Lesson 2 2.2 Excess Returns Excess return rX on a credit security can be thought of as the
spread s multiplied by the percentage holding period of the year t, multiplied by the product of change in spread minus the spread duration Dsof the bond:
03/07/2019 SS12 Fixed-Income Portfolio Management (2) / R25 Fixed-Income Active
Management: Credit Strategies / Lesson 2 Example 2.3 Solution:
The correct answer is A
Recall that 1 minus the recovery rate equals loss severity
02/28/2019 SS17 Risk Management Applications of Derivatives / R33 Risk Management
Applications of Option Strategies / Lesson 1 / Study Text Example 1.2 Solution:
Ai Value at initiation = V0= S0 + p0
Aii Value at initiation = V0= S0 + p0
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02/21/2019 SS17 Risk Management Applications of Derivatives / R33 Risk Management
Applications of Option Strategies / Lesson 1 / Study Text 1.1.4.1 Colllars Correction as follows to “Profit at option expiration”
Profit at option expiration=VT−V0=ST+max(X1−ST,0)−max(ST−X2,0)−[S0]
03/04/2019 SS17 Risk Management Applications of Derivatives / R33 Risk Management
Applications of Option Strategies / Lesson 1 / Study Text 1.1.4.1 Example 1.6 A trader buys a stock at $27 a share Subsequently, he buys a put
option on the stock with an exercise price of $20, time to maturity of six months, and a premium of $2.50 He also sells a call option with the exercise price of $38 on the same underlying stock and same time to expiration; the premium is the same as the put, $2.50 His portfolio is:
S0 + p(X = 20) − c(X = 38) Regarding this option collar:
A Compute the strategy's value at expiration and profit if in six months
of time at expiration the stock price is:
i $17 a share
ii $29 a share
iii $52 a share
Solutions:
A i When the terminal stock price is $17:
Value at initiation = V 0 = S 0 + [p 1 − c 2 ] = S 0 + 0 = $27 Value at option expiration = V T = S T + max (X 1 − S T , 0) − max (S T − X 2 , 0)
= 17 + max (20 − 17,0) − max (17 − 38,0) = $20 Profit at option expiration = V T − V 0 = 20 − 27 = −$7
ii When the terminal stock price is $29:
Value at initiation = V 0 = S + [p 1 − c 2 ] = S 0 + 0 = $27 Value at option expiration = V T = S T + max (X 1 − S T , 0) − max (S T − X 2 , 0)
= 29 + max (20 − 29,0) − max (29 − 38,0) = $29 Profit at option expiration = V T − V 0 = 29 − 27 = $2
iii When the terminal stock price is $52:
Value at initiation = V 0 = S 0 + [p 1 − c 2 ] = S 0 + 0 = $27 Value at option expiration = V T = S T + max (X 1 − S T , 0) − max (S T − X 2 , 0)
= 52 + max (20 − 52,0) − max (52 − 38,0) = $38 Profit at option expiration = V T − V 0 = 38 − 27 = $11
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02/21/2019 SS17 Risk Management Applications of Derivatives / R33 Risk Management
Applications of Option Strategies / Lesson 1 / Study Text 1.1.4.4 Box Spread An option box spread is a portfolio of four option positions: a long bull
spread with call options and a short bull spread(bear spread) with put options All four options share the same underlying stock and the same time to maturity A box spread is (c1 - c2 + p2 - p1) A trader buys a box spread to lock in a fixed terminal value of (x2 - x1) The box spread portfolio is a synthetic risk-free bond Traders use box spreads to explore arbitrage opportunities, when option prices are not correctly set
02/22/2019 SS17 Risk Management Applications of Derivatives / R34 Risk Management
Application of Swap Strategies / Lesson 3 / Study Text Example 3.1 Question 1 correction: Notional Pay Receive
A $80 million Return on S&P 500 Index Return on Oracle shares
B $60 million Return on S&P 500 Index Return on Oracle Shares
C $60 million Return on Oracle shares Return on S&P 500 Index