Caia Level 1
Caia Level 1 Questions
Caia Level 1 Questions
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Cartes-fiches
- financial engineering risk - differences in payment periodicity and dates - basis risk - credit spread compression - yield curve risk
- style drift - operational errors - fraud
- operational errors - operational fraud - agency conflicts
- Prevention - Detection - Mitigation
54%
- risks inherent in the stated hedge fund strategy - risks that arise from the use of leverage - idiosyncratic risks that arise from the implementation of the actual strategy
- Fund structure review - Investment strategy review - Administrative review - Performance review - Risk Assessment - Legal review - Checking references
- What is the fund's investment objective? - What is the fund's investment process? - What is the fund manager's comepitive advantage / value added?
a dependent variable and one or more independent variables
the percent of the variation in the dependent variable explained by the independent variables
OLS ordinary least squares method
- uncorrelated - homoskedastic - normally distributed
slope and intercept are biased upward, therefore, in return the t -statistic is biased downward - -> Type II error
to explain fund returns relative to: - returns of asset classes held by the fund (style analysis) - returns of funds with similar strategies - market factors that drive asset returns - fund replication using specialized market factors
fund replication using specialized market factors
- Regression test - Measure of skill test - Persistence of volatility test - Serial correlation test
if it offers higher return with equal or less risk or if it offers lower risk with equal or higher expected return
- Maximize exoected return within a risk class - Minimize risk within a return class
- target risk (variance) - portfolio sum = 100% - no short sale
all investors maximize their risk -return rate by investing in a risk -free fund and the diversified market fund
the minimum acceptable expected return that an asset can earn to be included in a portfolio
- non -normality - nonstationarity - investment constraints: shortfall risk, tracking error, and illiquidity
- Black -Litterman approach - shrinkage techniques - additional constraints approach
risk budgeting
Risk parity
- define total risk of the portfolio - calculate marginal risk contribution of each asset class to the total risk of the portfolio - detemine portfolio weights
- futures contracts - swap contracts - options - long and short positions in indices using ETFs and cash products
- invest cash in the small -cap strategy to generate alpha - take short position in a small -cap index using futures contracts to offset small -cap risk - take long position in the S&P500 via S&P500 futures to layer on the risk exposure of large -cap stocks
Portable Alpha