Caia Level 1

Caia Level 1 Questions

Caia Level 1 Questions


D. Z.
This flashcard set covers advanced finance topics at an expert level, focusing on risk management, investment strategies, and portfolio optimization. It delves into concepts like risk parity, alpha and beta management, and various investment structures, including hedge funds and collateralized debt obligations (CDOs). The flashcards explore methods for performance testing, due diligence processes, and the intricacies of credit derivatives. Ideal for finance professionals and investors, this set provides a comprehensive understanding of sophisticated financial instruments and strategies to enhance investment decision-making and portfolio performance.
Cartes-fiches
253
Utilisateurs
7
Langue
Anglais
Catégorie
Finances
Niveau
Autres
Créé / Mis à jour
10.02.2016 / 13.06.2022

Cartes-fiches

Chapter 25 - What are risks associated with CDOs?

- financial engineering risk - differences in payment periodicity and dates - basis risk - credit spread compression - yield curve risk

Chapter 27 - What are the 3 reasons the actual strategy may diverge from the stated strategy?

- style drift - operational errors - fraud

Chapter 27 - What are the 3 primary sources of operational risks?

- operational errors - operational fraud - agency conflicts

Chapter 27 - What are the 3 main actions a firm can take to control operational risks?

- Prevention - Detection - Mitigation

Chapter 27 - To what extent did operational risk contribute to hedge fund failures (in %)?

54%

Chapter 27 - What are the 3 primary sources of fund risk?

- 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

Chapter 28 - What are the 7 phases of a due diligence process?

- Fund structure review - Investment strategy review - Administrative review - Performance review - Risk Assessment - Legal review - Checking references

Chapter 28 - What are 3 fundamental questions a potential investor should ask?

- What is the fund's investment objective? - What is the fund's investment process? - What is the fund manager's comepitive advantage / value added?

Chapter 29 - A regression describes the relationship between?

a dependent variable and one or more independent variables

Chapter 29 - What measures R -square?

the percent of the variation in the dependent variable explained by the independent variables

Chapter 29 - A statistical method that derives estimates that minimize the sum of squared residuals refers to?

OLS ordinary least squares method

Chapter 29 - What 3 conditions must be met that the OLS method generate accurate and unbiased estimates?

- uncorrelated - homoskedastic - normally distributed

Chapter 29 - What is the problem of multicollinearity?

slope and intercept are biased upward, therefore, in return the t -statistic is biased downward - -> Type II error

Chapter 29 - Why are multifactor models applied?

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

Chapter 29 - Which of the four multifactor models works for hedge funds?

fund replication using specialized market factors

Chapter 29 - What are the 4 methods to test for perfomance persistence?

- Regression test - Measure of skill test - Persistence of volatility test - Serial correlation test

Chapter 30 - When is a portfolio dominant to another portfolio?

if it offers higher return with equal or less risk or if it offers lower risk with equal or higher expected return

Chapter 30 - efficient portfolios are expected to?

- Maximize exoected return within a risk class - Minimize risk within a return class

Chapter 30 - What are the 3 constraints subject for mean -variance optimized portfolios?

- target risk (variance) - portfolio sum = 100% - no short sale

Chapter 30 - What states the two -fund separation theorem?

all investors maximize their risk -return rate by investing in a risk -free fund and the diversified market fund

Chapter 30 - What is a hurdle rate regarding portfolio theory?

the minimum acceptable expected return that an asset can earn to be included in a portfolio

Chapter 30 - Why does mean -variance optimization (MVO) often fail to produce ex -post optimal portfolios?

- non -normality - nonstationarity - investment constraints: shortfall risk, tracking error, and illiquidity

Chapter 30 - What are the 3 extensions of the MVO (mean -variance optimization)?

- Black -Litterman approach - shrinkage techniques - additional constraints approach

Chapter 30 - The process of defining an acceptable amount of risk and then selecting portfolio weights based on the targeted, or budgeted risk refers to?

risk budgeting

Chapter 30 - A risk budgeting strategy that allocates risks equally across asset classes in the portfolio refers to?

Risk parity

Chapter 30 - What are the 3 steps to apply 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

Chapter 31 - State 4 ways to seperate Alpha from Beta.

- futures contracts - swap contracts - options - long and short positions in indices using ETFs and cash products

Chapter 31 - State the process when using futures to offset small -cap risk and layer on the risk of the S&P500

- 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

Chapter 31 - exploiting opportunities to increase alpha while simultaneously managing beta exposure to a target level refers to?

Portable Alpha

Étudier