Caia Level 1
Caia Level 1 Questions
Caia Level 1 Questions
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Cartes-fiches
fee bias
- they incorporate transaction impacts resulting from fund size - most indices from other financial products are also asset -weighted
- survivorship bias - selection bias - instant history bias - luquidation bias - participation bias
- Differencies in policies - Tax and regulation discrepancies - Business cycle disrepancies - Monetary policy mistakes - Macro country events - Behavioral biases - Divergent opinions
- market risk - event risk - leverage risk
- Financial reporting - Disclosure of trade information - Record keeping
- public commodity pools - private commodity pools - individual accounts
public commodity pools
Discretionary fund traders use fundamental analysis while systematic fund traders use technical analysis
Slippage
Degradation
- Trend -following Strategie - Non -Trend -following Strategie - Relative Value (Arbitrage)
- transparency risk - model risk - capacity risk - Liquidity risk - regulatory risk - lack of trends risk
- activist - distressed securities - merger arbitrage - multi -strategy -funds
selling insurance
- identifying corporations that do not maximize shareholder value - investing in positions that benefit from changes in corporate governance - Executing favorable corporate governance changes
- financial vs social activists - initiators vs followers - activists vs pacifists - friendly vs hostile - active vs passive
Agency costs
- Management, Compensation, and Board of Directors - Capital Structure and Dividend Policy - Mergers or Divestitures
traditional merger arbitrage
- regulatory risk - financial risk
A liquidation process takes places where all remaining assets of the firm are sold and proceeds are distributed to stakeholders
A reorganization process is put into place with the goal of reorganizing the firm so that it can continue operations after the bankruptcy proceedings are complete
Capital structure arbitrage
- Volatility arbitrage strategies - Fixed -income arbitrage strategies - Relative value multi -strategies
Identifying abnormal spreads between two related prices or rates and establishing a position anticipating convergence to normal levels
the purchase of a company's convertible bonds with the simultaneous short sale of the company's common stock
- busted convertible - -> high conversion premium; far out -of -the -money - hybrid convertibles - -> moderate conversion ratios; close to being at -the -money - equity -like convertible - -> in -the -money
delta
gamma
theta
realized volatility refers to the actual observed volatility or standard deviation of the underlying stock, whereas implied volatility refers to the standard deviation of returns based on the observed market option price
- Agents may underestimate the true costs of issuing convertible bonds - Agents of small firms may not have any other options than to issue convertible bonds - Potential conflict of interest between straight bond investors and shareholder regarding the volatility of corporate assets - Indirect equity issuance costs
- income (coupon payment - stock dividend + rebate - financing expenses) - capital gains/losses (gains on stock and bond - losses on stock and bond)
- interest rate risk - Equity and volatility risk - correlation risk - credit risk - legal risk - liquidity and crisis risk
vega
- long volatility fund - market -neutral volatility fund
Tail risk strategy
takes a long position in options of individual equities and a short position in a related index option
fixed -income arbitrage strategy