00 CFA III 各章节计算公式汇总

CFA III 各章节计算公式汇总
Reading 5 the Behavioral Finance Perspective

Bayes’formula: 3M9 All possible events must be mutually exclusive and exhaustive events with
known probabilities. 3M10
P(A|B) = [P(B|A)/P(B)] P(A)
where:
P(A|B) = updated probability of A given new information B.
补充：P(AB) = P(A|B) x P(B)
Reading 10 Estate Planning in a Global Context

3 After-tax Accumulations & Returns for Taxable Accounts 3M232
3.1 Simple Tax Environments 3M232 3.1.1-3.1.3 只有 incremental gains are taxed
tax an investment’s annual return at a single tax rate, regardless of its form, on a periodic basis,
usually annually(理解记忆: as opposed to deferred taxes that are postponed until some future
date).
3.1.1 Returns-based Taxes: Accrual Taxes on Interest & Dividends 3M233
Equation 1： Future Value Interest Factor: FVIFi = [1 + r(1 – ti)]n

r = pretax return; ti = tax rate applicable to investment income;
Example 2: Accrual Taxs 3M234 (FVIFi)
Proportion of potential investment gains consumed by taxes = 计税与不计税的投资
accumulation 之差 / 不计税投资 accumulation（扣除本金）
3.1.2 Returns-Based Taxes: Deferred Capital Gains: 3M234 deferred until realized.
Equation (2a) : FVIFcg = (1 + r)n – [(1 + r)n – 1]tcg
Equation (2b) : FVIFcg = (1 + r)n(1 – tcg) + tcg a 式变型式
Example 3: Deferred Capital Gains: 3M236
3.1.3 Cost Basis 3M237 差价税
Cost basis: amount that was paid to acquire an asset. a capital gain= selling price - cost basis.
Equation (3a) : FVIFcgb = (1 + r)n(1 – tcg) + tcg – (1 – B)tcg 基于公式 2b
B = Cost basis proportion of current market value of the investment 3M237
Equation (3b) : FVIFcgb = (1 + r)n(1 – tcg) + tcgB 3a 的变形式
Example 4: Cost Basis 3M238 （无参考价值）
3.1.4 Wealth-Based Taxes 3M238
A wealth tax is applied annually to a specific capital base(principal and return).
注 a wealth tax consumes a greater proportion of investment growth when returns are lower.238
Equation (4) : FVIFw = [(1 + r)(1 – tw)]n
3.2 Blended Taxing Enviroment 3M239

Unrealized capital gains = total return – interest - dividend - realized capital gains 3M240
In this setting, the annual return after realized taxes can be expressed as
r* = r(1 – piti – pdtd – prealized cgtrealized cg) 3M240
r=pre-tax overall return；r*=effective annual after-tax return
1
2
pi = interest portion percentage; pd = dividend portion percentage; pcg = realized capital gain
percentage
Effective deferred(unrealized) capital gains tax rate 如下: 3M241(组合最终变现时所被征收税

率)
T* = tcg(1 – pi – pd – prealized cg) / (1 – piti – pdtd – prealized cgtrealized cg)
分子=1 块钱当期总收益在扣除当期 interest, dividend 和 capital gain 之后理论所需支付的
deferred CG tax 的数额
分母=1 块钱当期总收益在扣除当期 interest, dividend 和 capital gain 赋税后的余额 = r*
Future after-tax accumulation for each unit of currency in a taxable portfolio (当下 unrealized
capital gains 在组合最终被清算时被征收 tcg):
Equation (5) ：FVIFTaxable = (1 + r*)n(1 – T*) + T* – (1 – B)tcg
其中：r*=effective annual after-tax return after tax erosions.
T*= effective deferred capital gains tax rate
B = Cost basis proportion of current market value of the investment
3.3 Accrual Equivalent Returns & Tax Rates 3M243

accrual equivalent after-tax return: tax-free return, if accrued annually, produces the same
after-tax accumulation as taxable portfolio. 3M243
3.3.1 Calculating Accrual Equivalent Returns 3M244 RAE = return of accrual equivalent
初始投资额 x ( 1+RAE) n = future after-tax accumulation（扣除 taxes on interest, dividend,
realized capital gains & 组合到期后 unrealized capital gains）
3.3.2 Calculate Accrual Equivalent Tax Rates 3M244 ( levied annually)
r ( 1-TAE ) = RAE 其中 r = average annual return during investment horizon
Example 9 Accrual Equivalent Return 3M245
4. Types of Investment Accounts 3M24

Investment accounts can be classified into three categories:
1) Taxable accounts 2) tax-deferred accounts: retirement saving plans & defined contribution
pension plan 3) tax exempt: 3M246
4.1 Tax-Deferred Accounts. 3M246
Equation (7): FVIFTDA = (1 + r)n(1 – Tn) 和 deferred capital gain 公式不同之处：对期初本金
也征税。
4.2 Tax-Exempt Accounts 3M246
Equation (8): FVIFTaxEx = (1 + r)n Example 10 Compare Accumulations of Acct Types 3M247
注：Contributions to a tax-exempt account are taxable, a pretax investment of 1 euro is reduced
to (1 − T0), where T0 = tax rate to initial pretax contribution.
Tax-exempt acct & tax deferred acct 区别在于：T0 与 Tn 谁大。3M249
Example 11 Choose Among Acct types: Taxable acct, tax deferred acct & tax exempt aact.3M249
5. Taxes & Investment Risk 3M250 original investment = 100,000 euro
Taxes absorb pretax volatility(standard deviation), thus absorb some investment risk; after-tax
volatility = (1 − t) * pretax volatility.
2
3
Reading 10 Estate Planning in a Global Context

2. Domestic Estate Planning: some Basic Concepts 3M273
Example 2 UK inheritance tax example: ( total estate – statutory allowance ) x required tax rate
in your tax bracket. 3M277-278
3. Core Capital & Excess Capital 3M278

3.1 Estimate Core Capital with Mortality Tables 3M280
survival probability: the probability that either husband or wife survives equals: 3M281
Equation (1) : p(Survival)=p(Husband survives)+p(Wife survives)−p(Husband survives) × p(Wife
survives)
接下来 assuming their chances of survival are independent of each other. The present value of
the spending need is then equal to: Equation (2) 3M280
The numerator is the expected cash flow in year j = the probability of surviving until that year *
the spending in that year should the person survive.不懂的话见 Exhibit 2 详例 282
1） spending needs are increased annually using a given inflation rate. 3M282
2） The sum of each year’s present value of expected spending represents the investor’s core
capital 3M282
3） spending needs are discounted using real risk-free rate. 3M283【注：题目用 nominal annual
spending，就相应用 norminal risk-free rate discount；如果是 inflation-adjusted annual
spending,则用 real risk free rate discount】
3.2 Estimate Core Capital with Monte Carlo Analysis 3M285
Expected returns used in Monte Carlo analysis are derived from asset market expectations
comprising the portfolio.3M285
Ruin Probability: probability of depleting one’s financial assets before death.3M285
Volatility decreases sustainability：
Equation 3: future accumulations per unit of currency
are equal to the product of one plus the geometric
average return(compounded return), or:3M287
The geometric average return is related to the arithmetic average return

and its volatility in the following way: Equation 4: -3M287Example 5
Core Capital with Monte Carlo Analysis 3M287（建议再看一遍）
4. Transfer Excess Capital 3M288

Excess capital = individual assets – individual core capital
4.1 Lifetime Gifts & Testamentary Bequests 3M288
In jurisdictions having an estate or inheritance tax, lifetime gifting has the advantage of lowering
the value of taxable estate.
4.1.1 Tax-Free-Gifts 3M289
Some gifts can escape transfer tax by falling below periodic or lifetime allowances.
Equation 5: 3M290
3
4
Te = estate tax if asset is bequeathed

rg = pretax returns to gift receipient
re = pretax turns to the estate making the gift;
tig = effective tax rates on investment returns on gift receipient
tie = effective tax rates on investment returns on estate making the gift
n = expected time until donor’s death
分母：future after-tax value of a taxable transfer by bequest
4.1.2 Taxable Gifts 3M291 （Recipient 付 gift tax）

Ratio of the after-tax future value of the gift and the bequest: 3M291 Equation 6
Tg = tax rate applicable to gifts.
公式前提：assumes that recipient paies gift
tax instead of donor
只要 Tg < Te，或者，虽然 Tg = Te，但 gifting 后的 tig < tie，则 gifting 仍有避税优势。3M292
4.1.3 Location of the Gift Tax Liability 3M293
Some jurisdictions impose gift tax liability on donor（即使 gifting away their assets）
这样做法的优势：tax benefit of the lifetime gift versus the bequest increases.Donor 代付这笔钱
进一步减少了自己 taxable estate 税基。
The relative after-tax value of the gift when the donor pays gift tax and when the recipient’s
estate will not be taxable (assuming rg = re and tig = tie) is: Equation 7
TgTe = tax benefit from reducing
the value of the taxable estate by
the amount of the gift tax.
Size of partial gift credit = gift size x TgTe 3M294 书 294 也有详细例子
Example 6 Gift & Estate Taxes: 3M295（可以再看一遍加强记忆）
4.2 Generation Skipping(transfer assets directly to third generation) 3M296
Relative value of skipping generations to transfer capital that is excess for both first and second
generations is 1/(1 − T1) where T1 is the tax rate of capital transferred from first to second
generation.
4.4 Valuation Discounts 3M297
1)lack of liquidity discount to privately held company 3M297
2)lack of control discount associated with a minority interest. 两者关系如下：
total discount = 1- (1-DLOC)(1-DLOM)
小结：Transferring assets subject to valuation discount reduces transfer tax basis, and hence the
transfer tax.3M297
Family limited partnership (FLP)：故意制造资产 illiquidity and lack of control. 其中 cash and
marketable securities receive less of a discount. 3M298
4.6 Charitable Gratuitous Transfers 3M298
Two forms of tax relief: wealth transfers to not-for-profit or charitable organizations 3M298
The relative after-tax future value over n years of a charitable
gift is compared to a taxable bequest as shown in Equation 8
below: 3M298 
分子第二部分= income tax deduction from the estate 减税.
Toi = tax rate on ordinary income and represents current
4
5
income tax benefit on a charitable transfer. Example 7 Charitable Gifts 3M299
6 Cross-Border Estate Planning 3M303

6.2 Tax System 3M305
Source jurisdiction: A country taxes income as a source within its borders
(也称 territorial tax system). ==>income tax
residence jurisdiction: Countries impose tax based on residency, whereby all income (domestic
and foreign sourced) is subject to taxation. ==>residential tax system. 3M305
6.3 Double Taxation 3M307
residence–residence conflict : two countries may claim residence of the same individual.3M307
source–source conflict: two countries may claim source jurisdiction of the same asset. 3M307
residence–source conflict : an individual in Country A may be subject to residence jurisdiction
and, therefore, taxation on worldwide income. Some of the individual’s assets may be located in
Country B, which exercises source jurisdiction on those assets. 3M307
6.3.1 Foreign Tax Credit Provisions 3M307
A residence country 化解 residence‑source conflicts 方式:
1) Credit method: 个人总 tax liability（to both residence & source jurisdiction）equals the
greater of tax liability due in either the residence or source country. 外国付过的部分国内抵
扣不用再付【按税率百分比算】
Equation 9: TCredit Method = Max[TResidence,TSource] 3M307
2) Exempt method: residence country impose no tax on foreign-source income 3M307
Equation 10: TExemption Method = TSource
3) Deduction method: residence country allows taxpayers to reduce their taxable income by
the amount of taxes【实际支出税额而非税率】paid to foreign governments:3M308
Equation 11: 个人赋税总负担
TDeductionMethod=TResidence+TSource(1−TResidence)=TResidence+TSource−TResidenceTSource
Example 8 Double Taxation Credit Provision 3M309
Reading 12 Risk Management for Individuals

2 Human Capital & Financial Capital 3M382
2.1 Human Capital 3M383: dominant asset on a household’s economic balance sheet.3M383
Equation 1:
Wt = employment income in year T
estimate the value of an individual’s human capital today, at Time 0 (HC0),
N=length of working life in years.(typically ends at retirement) 3M384 假设每年存活概率 100%
Equation 2: 3M384
the wage in time period t = a product of the wage in period t – 1 and the sum (1 + gt).
gt = annual wage growth rate, in nominal terms.
5
6
1+rf+y = modify discount rate to be the sum of the nominal risk-free rate rf and a risk adjustment
y based on occupational income volatility.
p(st) = mortality = probability of surviving to a given year (or age). 3M384
2.2 Financial Capital:
2.2.5 Non-marketable Assets 3M389: 最重要的一类：pension.
2.2.5.1 Employer Pension Plans (Vested): 3M389Equation 3 同 Equation 1:
mortality-weighted net present value of future benefits.
mNPV0 = mortality-weighted net present value at Time 0 (now),
bt = future expected vested benefit in year t;
p(st) = probability of surviving until year t, & a discount rate (r).390
4. Insurance & Annuities 3M405

4.1.4.4 Consumer Comparisons of Life Insurance Costs 3M413:
Two most popular indexes: 1) net payment cost index 2) surrender cost index 3M414
net payment cost index: 期末 the insured 死了，计算步骤：
1. 计算 future value of an annuity due（=premium）, compounded at a 5% discount rate for 20
years. An annuity due：期初收，计算机模式调整为 2nd beg 2nd set
2. 计算 future value of an ordinary annuity [=projected annual dividend (if any)], compounded at
5% for 20 years. An ordinary annuity：期末收.
3. 1-2 = 20-year insurance cost.
4. 用第三部结果为 FV，N=20, I=5%, PV=0, 换算 PMT = interest-adjusted cost per year(annuity
due).
5. 除以 1000 美金面额保单数. 3M414
计算
器调
整至
2nd
beg
2nd
set
Surrender cost index assumes that the policy will be surrendered at period end and that the
policy owner will receive the projected cash value. Calculation as the following steps:
1. 计算 future value of an annuity due（=premium）, compounded at 5% for 20 years.
2. 计算 future value of an ordinary annuity [= projected annual dividend (if any)], compounded
at 5% for 20 years.
3. 1-2-Year 20 projected cash value（第 20 年的 cash value） = 20-year insurance cost.
4. 用第三部结果为 FV，N=20, I=5%, PV=0, 换算 PMT = interest-adjusted cost per year(annuity
due).
5. 除以 1000 美金面额保单数.
计算器调
整至 2nd
beg 2nd set
Calculate
6
7
Calculate Life Insurance Needs：投保额度 3M416

1. human life value method: 如果他没死，他该为家庭所做的净贡献是多少 PV of ( human
capital – expenses)。
2. needs analysis method: meet family financial needs. [PV of 去世后家人（遗孀和孩子）的
开销] - any assets available = life insurance needed. 3M415
4.7 Annuities 3M422

4.7.2.4 Immediate Fixed Annuities: income yield = 每年 income / initial purchase price. 3M425
4.7.6. Appropriateness of Annuities 3M429
Each payment received by annuitant = interest (based on remaining assets from initial investment
minus benefits paid)+return of premium(principlal) + mortality credits.
Mortality credits: benefits that survivors receive from those individuals in the mortality pool who
have already passed away. 3M4293M430
5. Implementation of Risk Management for Individuals 3M431

5.2 Analyzing an Insurance Program 3M433Case study of Jacques & Marion
Life Insurance Needs 计算过程：human life value 或 need analysis
Human life value:
1）actual pre-tax compensation（年工资）
2）换算成税后 compensation
3）减去 family expenses of 去世那位本该花的
4）加上去世那位 non-taxable employee benefits
5）把 4）的值换算成 pre-tax mode.
6）折现 adjusted discount rate = [(1 + Discount rate)/(1 + annual growth rate)] – 1 3M436
7）计算器 2nd beg 2nd set mode annuity due (insurance premium 期初付) 3M435-436
Need-Analysis Method: 3M436-437

Financial needs= cash needs(人死后马上要付的钱) + capital needs（人死后将来要花的钱折现，
计算器 2nd beg 2nd set annuity due 模式）
Life insurance need = financial needs – 当前 capital available
Reading 13 Managing Institutional Investors Portfolios

3. Foundations & Endowments 3M484 二者虽都是 donations,但运作不同
3.2 Endowments: Background & Investment Setting 3M489
1) No minimum spending requirement in U.S.
2) Example of spending rules: 3M491
 Simple spending rule:
Spendingt = Spending rate × Ending market valuet–1
 Rolling three-year average spending rule:
Spendingt = Spending rate × (1/3) [Ending market valuet–1 + Ending market
valuet–2 + Ending market valuet–3] 前三年 ending MV 算术平均值
 Geometric smoothing rule.
Spendingt = Smoothing rate × [Spendingt–1 × (1 + Inflationt–1)] + (1 – Smoothing
rate) × (Spending rate × Beginning market valuet–1)
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8
4. The Insurance Industry 3M499

4.1 Life Insurance Companies: Background and Investment Setting 3M499
4.1.2 Return Objectives: 3M503
1) net interest spread:
minimum required return = actuaries’ assumed growth rate in policyholder reserves.
net interest spread(desired return) = interest earned - interest credited to policyholders 3M503
5. Banks and Other Institutional Investors 3M519

5.1. Banks: Background and Investment Setting
A bank’s Asset/Liability risk management Committee(ALCO): 3M520
Profitability measures ALCO will monitor: 3M521
1) Net interest margin = net interest income (即 interest income – interest expense) / average
earning assets. 3M521
2) Interest spread = average yield on earning assets - average percent cost of interest-bearing
liabilities. 3M521
Risk measures ALCO will monitor: 3M521
1) Leverage-adjusted duration gap = DA – kDL, where DA is the duration of assets, DL is the

duration of liabilities, and k = L/A, the ratio of the market value of liabilities (L) to the market
value of assets (A). The leverage-adjusted duration gap measures a bank’s overall interest
rate exposure.
Reading 14 Capital Market Expectations

3. TOOLS FOR FORMULATING CAPITAL MARKET EXPECTATIONS 3N23
3.1 Formal Tools 3N23
3.1.1 Statistical Methods 3N23
3.1.1.1 Historical Statistical Approach: Sample Estimators: 3N24
Arithmetic mean return: a single period 3N24
Geometric mean return: for multiperiod growth 3N24
3.1.1.2 Shrinkage Estimators Shrinkage estimation: take weighted average of a historical
estimate of a parameter & some other parameter estimate==>shrinkagereduce extreme values’
impact in historical estimates. 3N25
包含 select an alternative estimator of covariance matrix (target covariance matrix)
3.1.1.3 Time-series estimators: Volatility clustering: tendency for large (small) swings in prices to
be followed by large (small) swings of random direction. 3N27
The volatility in period t, σ2t ,is a weighted average of the volatility in the previous period, σ2t−1,
and the squared value of a random “noise” term, ε2t. The expression is: 3N27
Equation 1:
with 0 < β < 1. The coefficient β measures decay rate of volatility value influence in one period on
future volatility, and the rate of decay is exponential. The higher β is, the more volatility in one
period “remembers” what happened in the past and the more it clusters. 3N27
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9
3.1.1.4 Multifactor Models: K factors drive asset returns 3N27

equation 2 3N27
Ri = the return to asset I ; ai = an intercept term in the equation for asset i
Fk = the return to factor k, k = 1, 2, …, K
bik = the sensitivity of the return to asset i to the return to factor k, k = 1, 2, …, K

εi = an error term with a zero mean that represents the portion of the return to asset i not
explained by the factor model. 3N28
Factor covariance matrix: containers covariances for the factors
assumed to drive returns. 3N28
Asset covariance matrix: 3N28 预估用以下公式
Exhibit 5 Hypothetical Statistics for Five Markets
Factor Sensitivities. 3N29
Residual Risk: market idiosyncratic risk not explained by
residual variance, Var(εi) for market I; residuals are
uncorrelated. 3N29
Mii = variance of market i 3N29
Equation 3a
Mij = covariance of market I with market j.

Equation 3b 3N29
此处 F1&F2 分别是 Global Equity & Global
Bonds
Mutlifactor model advantage: ability to establish consistency
efficiently (bwteen factors & factor-to-assets) 3N30
= Exhibit 6 a Two-Layer Factor Approach 3N30（理解记忆）
衍生成 multilayer Factor Approach: 涵盖 real estate sectors.
3N30-31
3.1.2 Discounted Cash Flow Models 3N31 Equation 4

V0 = the value of the asset at time t = 0 (today)
CFt = the cash flow (or the expected cash flow, for risky cash flows)
at time t
r = the discount rate or required rate of return
3.1.2.1 Equity Markets 3N31Gordon（constant）growth modelequation 5
E(Re) = expected rate of return on equity.
D0 = the most recent annual dividend per share
g = long-term growth rate in dividends, P0 = the current share price
估算 g：1)最简单: nominal GDP. 3N32
2) Earnings growth rate = GDP growth rate + Excess corporate growth (for the index companies)
Grinold-Kroner model: 3N33
Equation 6: E(Re) = expected rate of return on equity
9
10
D/P = expected dividend yield

ΔS = expected percent change in share number outstanding 股票流通数减少则 ΔS 就是负数
（ΔS= - repurchase yield）3N33
i = the expected inflation rate
g = the expected real total earnings growth rate (not identical to the EPS growth rate in general,
with changes in shares outstanding)
ΔPE = the per period percent change in the P/E multiple
上述公式分解为以下 3 部分：3N33
 Expected income return: D/P − ΔS.
 Expected nominal earnings growth return: i + g.
 Expected repricing return: ΔPE.
Expected nominal earnings growth return + expected repricing return = expected capital gains.
3N33Example 14 Forecasting the Return on Equities Using the Grinold–Kroner Model 3N35
3.1.2.2 Fixed-income Markets: 3N35DCF model, single discount rate(YTM)YTM is an
estimate of expected rate of return on the bond.特别是 zero-coupon bond YTM 3N35
3.1.3 Risk Premium Approach 3N36 也称 build-up approach 3N36
3.1.3.1 A general expression: Equation 7 Expected return on a risky asset 3N36
E(Ri)=RF+(Risk premium)1+(Risk premium)2+…+(Risk premium)K

3.1.3.2 Fixed-Income Premiums 3N36 Expected bond return.
E(Rb) = Real risk-free interest rate + Inflation premium + Default risk
premium + Illiquidity premium + Maturity premium + Tax premium

其中：default risk = expected default loss in yield terms + a premium for nondiversifiable risk of
default. 3N36
Maturity premium: positive maturity premium for longer-term debt 3N37
3.1.3.3 The Equity Risk Premium: compensation for additional risk of equity over debt:
Equation 8: E(Re) = YTM on a long-term government bond + Equity risk premium 3N38
3.1.4 Financial Market Equilibrium Models 3N40:
International Capital Asset Pricing Model 3N40: Equation 9
E(Ri) = RF + βi[E(RM) – RF]
其中：E(Ri) = the expected return on asset i given its beta ；RF = the risk-free rate of return
E(RM) = the expected return on the world market portfolio
βi = the asset’s sensitivity to returns on the world market portfolio, equal to Cov(Ri,RM)/Var(RM)
注：global investable market: proxy for world market portfolio 3N40
从等式 9 推导出 an asset class risk premium, RPi, equal to E(Ri) − RF, is a simple function of the
world market risk premium, RPM, equal to E(RM) − RF: 3N41risk premium under fully
integration with global market 本段理解记忆
Equation 10 
1）右式圆括号里的是 sharp ratio of the world market portfolio

2）等式 10 是 one of the two key equations in Singer-Terhaar approach 3N41
10
11
3）Singer–Terhaar approach recognizes market imperfections(illiquidity & market segmentation)

that are not considered by the ICAPM. 3N41
Risk premium for the completely segmented markets case where ρi,M in Equation 10 equals 1 as
individual market and the reference market portfolio are identical 3N42Equation 11
注：等式 11 是 second key equation in Singer-Terhaar approach 3N42
小结：Singer-Terhaar approach 估算 expected return 3N43

1. Estimate perfectly integrated & completely segmented risk premiums for the asset class
using the ICAPM.
2. 1）+ applicable illiquidity premium 3N45
3. Estimate the degree to which the asset market is perfectly integrated.
4. 基于第三步 Take a weighted average of the perfectly integrated and completely segmented
risk premiums 3N43
5. 4）+ risk free rate
Example 18 Justify Capital Market Forecasts 3N43
correlation between two different asset classes within one local market is given by
（这个公式要背）
Estimate Illiquidity risk premium multiperiod Sharp Ratio: investment’s multiperiod wealth in
excess of wealth generated by risk-free investment. If an alternative investment’s expected return
is 16%而让该 return 的 MPSR 等于 market level 的话，要 25%return，那么 liquidity premium =
9% 3N45
Example 19 Setting CME Using the Singer-Terhaar Approach 3N46（再看将 3.1.4 计算过程全现）
Covariance between two different asset classes within one local market =
3.2 Survey & Panel Methods 3N48
Survey method: ask a group of experts for their expectations and use the responses in capital
market formulation.3N48
a panel of experts panel method. 3N48
3.3 Judgment 3N50: Expectations-setting process can give wide scope to applying judgment—in
particular, economic and psychological insight—to improve forecasts. In forecasting, numbers,
including those produced by quantitative models, must be evaluated.
4.Economic Analysis 3N50
4.1.5 Evaluating Factors that affect business cycle 3N60
4.1.5.3 Monetary Policy 3N62
Equation 12: Taylor Rule: Roptimal=Rneutral+[0.5×(GDPgforecast−GDPgtrend)+0.5×(Iforecast−Itarget)]
其中：Roptimal = the target for the short-term interest rate 3N63
Rneutral = the short-term interest rate that would be targeted if GDP growth were on
trend and inflation on target
GDPgforecast = the GDP forecast growth rate
GDPgtrend = the observed GDP trend growth rate
Iforecast = the forecast inflation rate
Itarget = the target inflation rate
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12
4.6 Using Economic Information in Forecasting Asset Class Returns 3N89

4.6.2 Nominal Default-Free Bonds 3N91: developed countries’government bonds. 3N91 两个角
度考虑：3N91
1) government bond yield = expected future short-term Treasury bill yields over same horizon.
2) longer-term bonds yield = real bond yield determined by GDP growth rate & supply and
demand for capital + expected inflation over investment period. 3N91
4.6.5 Inflation-indexed Bonds 3N92例子：Treasury Inflation Protected Securities 3N92 = a
fixed coupon (the real portion) + an adjustment equal to change in consumer prices.
Exhibit 26 the Macroeconomy & Real
Yields 3N93（通胀上升，政府升息，TIPS
吸引力下降）
Reading 15 Equity Market Valuation（中量习题 16 点）

2 Estimating a Justified P/E Ratio 3N126
2.1 Neoclassical Approach to Growth Accounting 3N126
Cobb-Douglas production function: equation 1 3N127
其中 Y = total real economic output,
A = total factor productivity；K = capital stock, α = output elasticity of K,
L = labor input； β = the output elasticity of L.
假设 production function exhibits constant returns to scale (capital stock & labour input 增速
=ttl out 增速) we can substitute β = (1 − α) into Equation 1: Equation 2 3N127（公式 2 和 3
背 3）
ln(Y) = ln(A) + αln(K) + (1 – α)ln(L) 其中 ln = natural logarithm
Equation 3: (由公式 2 推导出来)
3N127
ΔY/Y = percentage growth in real output (or gross domestic product, GDP) 3N127
ΔA/A = growth in TFP; ΔK/K = the growth in the capital stock; ΔL/L = the growth in the labor
input; α = the output elasticity of capital; and 1 − α = the output elasticity of labor
where 0 < α < 1 3N127
Solow residual = TFP =
2.4 Equity Market Valuation 3N131 （LOS c-d）

Dividend growth rate ≈ real GDP growth rate = equation 3.
H Model: Equation 4:
3N132
N = 高速增长期
Forward or justified P/E ratio = estimated intrinsic value / year-ahead expected earnings 3N133
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其中 estimated intrinsic value 用 H model 测 V0 = P0 justified 指 warranted by fundamentals.

Gordon Growth Model for Mature Economies.
4. Relative Value Models 3N147

4.1 Estimate-based models 3N147
•US stocks are undervalued if Fed model ratio > 1

缺点：
1) ignore equity risk premium. 3N148
2) ignore earnings growth (拿企业 earning yields 仅和 treasure yield 对比)
3) compares a real variable(earning yield) to a nominal variable(treasure yield).
优点：1）Consistent with discounted cash flow models that show an inverse relationship between
value and the discount rate.（利率降，discount rate 降，资产价格增） 3N149
2）Easy to understand and apply.
Yardeni Model 3N150:

公式变形：r = Moody’A-rated corporate bond yield = y B （缺点这样设置虽然有 default risk
premium 考虑，仍未能进一步体现 equity risk premium）
g=consensus five-year earnings growth forecast = LTEG
d= a weighting factor measuring the importance the market assigns to the earnings projections.
Equation 9 = justified (forward) earnings yield on equities 3N151
1) 该式结果 <current equity market forward earnings
yieldequities in market are undervalued.
或者对比 P0 来看3N151
1) 所得 P0 > current equity market levelequities are undervalued
优点：1）Improves on the Fed model by including the yield on risky debt and a measure of
expected earnings growth as determinants of value.3N160
缺点：1）Risk premium captured by the model is largely a default risk premium that does not
accurately measure equity risk. 3N160
2）The forecast for earnings growth may not be accurate or sustainable. 3N160
3）公式中假设 discount factor remains constant over time. 3N160==》即 d 这个变量
Cyclically Adjusted P/E Ratio (CAPE): 分子=real S&P 500 price index 分母=moving average of
the preceding 10 years of real reported earnings（一个商业周期差不多 10 年） 3N153
Example 13 Determining CAPE: A historical Exercise 3N154
Real stock price indext = Nominal stock price indext × CPI 今年 ÷ CPIt
Real earningst = Nominal earningst × CPI 今年 ÷ CPIt+1
其中 t 是所要求的过去某一年 3N154
CAPE = Real stock price index1881 / Average real earnings 1871-1880
如何预测：Future equity returns will be higher when CAPE is low.
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4.2 Asset-Based Models 3N157

一、company level: Torbin’s q = market value of a company / replacement cost of its
assets = MV of its debt & equity / replacement cost of its assets
注意：company level 中分母难估计(忽略 replacement cost of intangible assets)158
1) Torbin’s q ≈ 1 in equilibrium 3N157
2) Torbin’s q > 1, additional capital investment profitable
3) Tobin’s q < 1, further capital investment unprofitable. 3N158
二、overall market level, = MV of aggregate debt & equity / replacement cost of
aggregate corporate assets
Assume that Tobin’s q will revert to the comparison value(historical mean value),
1) a Tobin’s q < comparison values, the market being undervalued
2) a Tobin’s q = comparison values, fairly valued,
3) a Tobin’s q > comparison value, overvalued.
Equity q = a company’s equity market capitalization / net worth at replacement costs

(即 assets at market value or replacement costs – MV of liabilities or debts). 3N158
判断 equity market 估值情况同 torbin’s q. 3N158
Reading 17 Principles of Asset Allocation 3N235（无习题）

2.Developing Asset-Only Asset Allocations 3N237
2.1 Mean-Variance Optimization: Overview 3N237
Risk Budgeting tool: Mean–variance optimization=>determine how much to allocate to each
asset in order to maximize the expected return of the portfolio for an expected risk level. 3N237
Equation 1: Um = the investor’s utility for asset mix (allocation) m
Rm = the return for asset mix m
λ = the investor’s risk aversion coefficient
其中：Um 和 Rm 以百分比表达;如果是 decimals 表达法，则 0.005 换成 0.5 。3N238

Um 也叫 certainty-equivalent return—所得值 stated in terms of risk-free return investor would
value equally. 3N238
2.6 Risk Budgeting 3N267

marginal contribution to total risk (MCTR) identifies the rate at which risk would change with a
small (or marginal) change in current weights.==>
MCTRi = (Beta of asset class i with respect to portfolio)(Portfolio return volatility). 3N267
Absolute contribution to total risk (ACTR) how much an asset class contributes to portfolio
return volatility ACTRi = (Weighti)(MCTRi).
An asset allocation is optimal from a risk-budgeting perspective when【=(Expected return –

Risk-free rate) / MCTR】 is the same for all assets and matches the Sharpe ratio of the tangency
portfolio. 3N267
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3 Develop Liability-relative Asset Allocations 3N273

3.1 Characterizing the liabilities 3N273 (LOS j)
A liability：be fixed or contingent. Fixed: 比如 A corporate bond with a fixed coupon rate;
Contingent: 比如 defined Benefit Pension Plan 3N273
Quasi-liabilites: endowment of a university 3N273=> not legal cash paying liabilities; speding
needs of an individual
Exhibit 23. Characteristics of Liabilities That Can Affect Asset Allocation 3N274
1.Fixed versus contingent cash flows
2.Legal versus quasi-liabilities
3.Duration and convexity of liability cash flows
4.Value of liabilities as compared with the size of the sponsoring organization
5.Factors driving future liability cash flows (inflation, economic conditions, interest rates, risk
premium)
6.Timing considerations, such as longevity risk
7.Regulations affecting liability cash flow calculations
they affect the choice of appropriate discount rate(s) to establish PV of the liabilities;
Basis risk: quantifies the degree of mismatch between hedging portfolio and the liabilities.274
3.2 Approaches to Liability-Relative Asset Allocation 3N276 (LOS k) 3 大法

3.2.1 Surplus Optimization 3N277
Equation 2:
where ULRm = surplus objective function’s expected value for asset mix m;
E(Rs,m) = expected surplus return for asset mix msurplus return = (Change in asset value –
Change in liability value)/(Initial asset value);
λ (lambda) = investor’s risk aversion.
注 the change in liability value (liability return) = the time value of money for the liabilities + any
expected changes in the discount rate & future cash flows over the planning horizon.
4. Developing Goals-Based Asset Allocations 3N289:

4.1 The Goals-Based Asset Allocation Process 3N291
第一步：create portfolio modules(pre-optimized subportfolios),
第二步：identify client goals and match each of these goals to the appropriate sub-portfolio of a
suitable asset size. 3N293
4.4 The Overall Portfolio 3N298
Overall allocation to certain asset class =∑ Module X’s required capital 占 ttl capital 的百分比 *
certain asset class 占 module x 的百分比 3N300
5 Heuristics & Other Approaches to Asset Allocation 3N306 (LOS n)

Heuristics: rules that provide a reasonable but not necessarily optimal solution 3N306
1) The”120 minus your age” rule: 120 – Age = Percentage allocated to stocks ( vs fixed income
split) 随年龄增长，公式体现 target date funds 特征 3N306
2) The 60/40 stock/bond heuristic: 3N308
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16
3) The Endowment (Yale) Model: asset allocation approach that emphasizes large allocations to
non-traditional investments, including equity-oriented investments driven by investment
manager skill (e.g., private equities) earn illiquid equity premiums 3N308
4) Risk Parity: asset allocation that each asset (asset class or risk factor) should contribute
equally to total risk of the portfolio for a portfolio to be well diversified. 3N309
Equation 3 3N309
wi = the weight of asset i

Cov(ri,rP) = the covariance of asset i with the portfolio
n = the number of assets ; σ2P = the variance of the portfolio
注：primary criticism: focus on risk and ignore expected returns. 3N309
5) the 1/N rule: equally weighting allocations to assets at each rebalancing date. 3N311
Study Session 9 Asset Allocation & Related Decisions in Portfolio Management(2)
Reading 18 Asset Allocation with Real-World Constraints 无习题

3 Asset Allocation for the Taxable Investor 3N340
3.1 After-tax portfolio optimization 3N341 (LOS b)
Equation (1) rat = rpt(1 – t)  Where: rat = the expected after-tax return ; rpt = the expected
pre-tax (gross) return ; t = the expected tax rate 3N341 适用 bonds（interest income）3N341
Equation (2) rat = pdrpt(1 – td) + parpt(1 – tcg)

Where: pd = the proportion of rpt attributed to dividend income ;
pa = the proportion of rpt attributed to price appreciation
td = the dividend tax rate
tcg = the capital gains tax rate 3N341
适用 equity:两部分收入：dividend + capital appreciation 3N341
Equation (3) σat = σpt(1 – t) where σat = the expected after-tax standard deviation
σpt = the expected pre-tax standard deviation 3N342（部分波动风险转嫁给政府 via tax）

3.2.Taxes & Portfolio Rebalancing 3N344 (LOS b)
Rebalancing results in taxation on realized gains/losses，所以 taxable asset owners 必须做好权
衡 3N345因为 after tax volatility 减，而 asset class 间 correlation 不变，rebalancing ranges for
taxable portfolios > [tax-exempt ones under a similar risk profile(desired risk level)]. 3N345
Equation 4: Rat =Rpt / (1 – t) ; where Rat = the after-tax rebalancing range ; Rpt = the pre-tax
rebalancing range 3N345
3.3 Strategies to Reduce Tax Impact 3N345 1. tax loss harvesting: 3N345
2. strategic asset allocation: placing (or locating) less tax-efficient assets in accounts with more
favorable tax treatment, such as retirement savings accounts. 3N345
1) After-tax value of assets in a tax-deferred account  Equation (5) vat = vpt(1 – ti)
where: vat = the after-tax value of assets ; vpt = the pre-tax market value of assets
ti = the expected income tax rate upon distribution 3N345
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17
Reading 19 Currency Management: An Introduction 重点章节大量题 24 点

2 Review of Foreign Exchange Concepts 3N374
2.1 Spot markets 3N375 报价基础 Price currency / Base currency. 3N376
1) 报价小数保留 4 位 3N376one pip = 0.0001
2) Spot exchange rate use T+2 settlement. 3N377
Forward contract price before expiration：3N379
1) 先 long a base currency，要 close before expiration, 则 short the same base currency for
remaining contract days
2) FPt 计算一律用 up-the-bid-and-multiply 原则（用 bid price），因为要 close 之前合约需要
买回 price currency.
3) R = interest rate for price currency.
3. Currency Risk and Portfolio Return & Risk 3N381 LOS a
3.1 Return Decomposition 3N381 LOS a
Foreign-currency return: Return of the foreign asset measured in foreign-currency terms382
Domestic-currency return on a foreign asset
Equation (1): RDC = (1 + RFC)(1 + RFX) – 1 3N382RFX is the percentage change of foreign
currency against domestic currency.【domestic currency is always the price currency】(外币升
值是好事) 3N382USD appreciate by 5% against the Euro 指 Euro/USD 中 1 美元所对价的 Euro
增加了 5%。
公式 2 是公式 1 的拓展式：3N383domestic-currency return on a portfolio of multiple foreign
assets will be equal to Equation 2 3N383
RFC,i = foreign-currency return on the i-th foreign asset, RFX,i = appreciation of the i-th foreign
currency against the domestic currency, and ωi = portfolio weights of foreign-currency assets 383
3.2 Volatility Decomposition 3N384 LOS a
Equation 3: RDC ≈ RFC + RFX
Equation 4: ============
Equation 5:由公式 4 推到：
公式 5 是 variance of
domestic-currency return. 我们取该式的平方根作为 risk volatility 测量=>单个 foreign 投资
Equation 6: variance of the domestic-currency returns for the overall foreign asset portfolio
domestic-currency
return (RDC) of two different foreign-currency investments（两个 foreign 投资）, and the ωi as
portfolio weights that sum to one. 3N384【If short-selling is allowed in the portfolio, some of
these ωi can be negative as long as the total portfolio weights sum to one.3N385】
5. Currency Management: Tactical Decisions 3N399Active Currency Management(LOS d)

5.3. Active Currency Management Based on the Carry Trade 3N402: borrow in low-yield
currencies and invest in high-yield currencies基于 uncovered interest rate parity. 3N402
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18
%ΔSH/L ≈ iH – iL where %ΔSH/L = percentage change in the SH/L spot exchange rate (the
low-yield currency is the base currency), iH = interest rate on the high-yield currency and iL =
interest rate on the low-yield currency. 3N402(利率高的国家远期货币贬值)==》a positive value
for %ΔSH/L means a depreciation of the high-yield currency. 3N402
An implication of uncovered interest rate parity: forward rate should be an unbiased predictor of
future spot rates. 3N403
Forward rate bias: 但往利率高的国家远期货币不但不贬，还升值（short-medium terms）403
与 covered interest rate parity 公式推导出来的结论相反。
Covered interest rate parity: Given A/B quote structure: 3I 243
F = forward rate ( quoted as A/B)
S0=spot rate (quoted as A/B)
days = number of days in the underlying forward contract
RA=interest rate for Currency A
RB=interest rate for Currency B
5.4. Active Currency Management Based on Volatility Trading 3N404option market. 3N404
•Delta: sensitivity of option premium to a small change in underlying asset price. 3N404
Delta hedging: the act of hedging away the option position’s exposure to delta, the price risk of
the underlying (the FX spot rate, in this case). 3N405
Long stock position & Long forward position: delta of +1;
Short stock position & Short forward position: delta of -1.
Option hedge ratio: size of offsetting hedge position that will set the net delta of the combined
【各因素间 delta 直接加减】 if a trader was long a call
position (option plus delta hedge) to zero.
option on USD/EUR with a nominal value of EUR 1 million and a delta of +0.5, the delta hedge
would involve a short forward position (delta = -1) in USD/EUR of EUR 0.5 million.【1 mil x 0.5 /
- 1 = - 0.5 mil】3N405 Once the delta hedge has set the net delta of the position to zero, the
trader then has exposure only to the other Greeks(like vega). 3N405
How currency options are quoted in professional FX markets: 3N406in interdealer market,
options are described in terms of their “delta.” Deltas for puts can range from a minimum of –1 to
a maximum of 0, with a delta of –0.5 being the point at which the put option is ATM; OTM puts
have deltas between 0 and –0.5. For call options, delta ranges from 0 to +1, with 0.5 being the
ATM point.全部用绝对值表示（均为正数）& as percentage3N406 25-delta and 10-delta
optionsa delta of 0.25 and 0.10, respectively 3N406
Depreciation in INR / USD rate = INR appreciates against USD. 3N408-409
6. Tools of Currency Management 3N409

6.1.1 Hedge Ratios with Forward Contracts 3N411
Static Hedge: (i.e., unchanging hedge) will avoid transaction costs, but will accumulate unwanted
currency exposures as the value of the foreign-currency assets change.412
Dynamic Hedge: rebalance the portfolio periodically.mismatched FX swap on forward contract
roll-over date. 3N412 具体案例：Roll hedge Forward. 3N413-414（for matched swap, the
convention is to base pricing on the mid-market spot exchange rate；而 mismatched swap 仍然用
up-the-bid-and-multiply;down-the-ask-and-divide）
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6.1.2 Roll Yield 3N414也称 roll return. 3N414

The magnitude of roll yield = |(FP/B – SP/B)/SP/B| where “||” indicates absolute value. FP/B=all in
forward rate at contract initiation; SP/B= current spot rate 3N414
A positive roll yield results from buying the base currency at a forward discount(price currency 升
值时)or selling it at a forward premium （price currency 贬值时，获取更多 price currency）. 3N414
Roll yield = forward rate bias = carry trade 3N415 （Forward Premium 状态下， forward price curve
upward-slopping,随时间推移 Forward price 永远高于 spot rate）
The higher the expected hedge cost (negative
roll yield) the more the cost/benefit calculation
moves against using a fully hedged position.
3N416
Example 4 Hedging Decision3N416
Hedging benefit: targeted foreign currency
appreciation or depreciation percentage =
( forward forecast spot rate – current spot rate )
/ current spot rate；
Hedging cost = roll yield = (FP/B – current
SP/B)/ current SP/B=以上二者间权衡
6.4.2. Minimum-Variance Hedge Ratio 3N431 估算β公式要背诵
A mathematical approach to determining the optimal cross hedging ratio 3N431
y=% change in asset value to be hedged
x=% change in hedging instrument value.
如何估算β=
(regression)
所得
β就是 minimum variance hedge ratio
Reading 20 Market Indexes & Benchmarks(少习题 6 点)

3 Benchmark Uses & Types 3N466 Plan sponsor & fund manager 3N466
3.2 Types of Benchmarks 3N468 LOS c & d
1. factor-model-based benchmarks: equation 1 3N469
Rp = ap + b1F1 + b2F2 … bkFk + εp
Where: Rp = the portfolio’s periodic return
ap = the “zero-factor” term, which is the expected portfolio return if all factor sensitivities are zero
bk = the sensitivity of portfolio returns to the factor return
Fk = systematic factors responsible for asset returns
εp = residual return due to nonsystematic factors
CFA III-Fixed Income 关键词清单 Vol 4

Study Session 10 Fixed-Income Portfolio Management (1)
Reading 21 Introduction to Fixed-Income Portfolio Management
19
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少题量都是 case study 选择题 12 题

3 Fixed-income mandates 3O11 两类 Liability-based mandates & total return mandates LOS b
3.2 Total Return Mandates 3O15: establish objectives based on a specified absolute return or a
relative return. Generally structured to either track or outperform a specified bond index.==>
active return(=portfolio return - benchmark return) and active risk(=annualized standard
deviation of active returns 也称 tracking error or track risk ) are key metrics. 3O15
5 A Model for Fixed Income Returns 3O23 LOS d
5.1 Decompose Expected Returns (expected return of bond portfolio). 3O23
E(R)≈Yield income + Rolldown return + E(Change in price based on investor's views of yields and
yield spreads) − E(Credit losses) + E( Currency gains or losses) 3O23 非正式公式
E(..)= effects on expected returns.
Yield income (or Current yield) = Annual coupon payment/Current bond price (assume no
reinvestment income) 3O23
Rolldown return results from the bond “rolling down” the yield curve as the time to maturity
decreases, assuming zero interest rate volatility. 3O23
Assuming an unchanged yield curve: 3O24
Rolling yield = yield income + rolldown return

E(Change in price based on investor’s views of yields and yield spreads) = [–MD × ∆Yield] + [½ ×
Convexity × (∆Yield)2] 3O24: MD: modified duration
Expected credit losses = bond’s probability of default x loss given default 3O24
6 Leverage 3O27 LOS e
6.1 Using Leverage 3O27 LOS e
VE = portfolio’s equity value
VB = borrowed funds
rB = borrowing rate (cost of borrowing)
rI = return on the invested funds (investment returns)
rp = return on the levered portfolio 3O28
以下变形式第二部分表现 effect of leverage: 3O28
6.2. Methods for Leveraging Fixed-Income Portfolios 3O28 LOS e
6.2.1. Futures Contracts 3O28: gain exposure to a large quantity of the underlying asset
without having to actually transact in the underlying. 3O28
Margin = margin deposit 3O29
6.2.3 Structured Financial instruments 3O29: repackage & redistribute risks. Embedded leverage
例: inverse floating-rate note (inverse floater): its coupon has an inverse relationship to market
interest rate such as Libor: Coupon rate = 15% – (1.5 × Libor3-month) 3O29
6.2.4 Repurchase Agreements 3O29
Repo rate = security’s selling price – repurchase price 3O30
Dollar interest = Principal amount × Repo rate × (Term of repo in days/360) 3O30
6.2.5 Securities Lending 3O30 another form of collateralized lending & closely related to repo
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market. 主要动机：1）facilitate short sales (cash collateral). 2）collateralized borrowing: bond

owners lend bond to another for cash. 3O30
Lending fee: 1）lender has positive lending fee under cash collateral（同时 cash collateral 可以
reinvest 额外获利）2）negative under financing purpose.
Rebate rate = collateral earnings rate – security lending rate 3O31【collateral 为 bond 时产生的
interest income】
与 repo 区别：open-ended，借贷双方都可随时 recall 3O31
Reading 22 Liability-Driven & Index-Based Strategies

3 Interest Rate Immunization – Manage the Interest Rate Risk of a Single Liability 3O52 LOS b
In practice, portfolio duration≈market value weighted average of individual durations for each
bond. 3O55
Dispersion at timen(n=1,2,3,etc) = [ timen – sum of (timen*weight at
timen) ]2*weight at timen 3O56 其中：weight = PV of cash flow at time n / current portfolio
total value；Macaulay duration= sum of (timen*weight at timen) 3O56 书 54 页 exhibit
4 是具体例子详述.
Annualized portfolio Macaulay duration = semi-annual periods Macaulay duration / 2 3O55
Annualized portfolio dispersion = semi-annual periods portfolio dispersion / 4 3O56
Convexity = (time n * time n+1 * weight at time n) 3O56
Semi-annual period portfolio convexity = 表格 ttl convexity / (1+cash flow yield each period)2
注：cash flow yield = internal rate of return = discount rate (半年期算现金流就按半年期化 IRR 算)
Annualized portfolio convexity = semi-annual periods portfolio convexity / 4 3O56
Equation 1: 3O56
注：所有参数必须统一时间段，即 annualized,或 semi-annualized etc. 3O56

4 Interest Rate Immunization – Manage the Interest Rate Risk of Multiple Liabilities. 3O64 LOSc
4.1 Cash Flow Matching
Example 3 非常重要，如何算 cash flow matching66
计算顺序：1）从最远的 due time 往回算
2）due time payment at time n 最后一年= principal (par value) +自身最后一期 coupon
paymentpar value = due time payment – 当期 coupon payment = due time payment / (1+该年
到期债券 coupon rate n)
3）due time payment at time n 倒数第二年开始 = principal (par value) +自身最后一期 coupon
payment + （n+1）年至最后一年债券（往后看）所有当期 coupon payment par value = [due
time payment –（n+1）年至最后一年债券（往后看）所有当期 coupon payment] / (1+该年到
期债券 coupon rate n)
4.2. Duration Matching 3O67 非常像 section 3 中 manage single liability
Modified duration = portfolio Macaulay duration / (1+cash flow yield per period)
Money duration = portfolio modified duration x market value 3O67
Basis Point Value for money duration = money duration x 1 bp(0.0001) 3O68
4.3 Derivatives Overlay 3O73
Interest rate derivatives can be a cost-effective method to rebalance immunizing portfolio to
keep it on its target duration as yield curve shifts and twists and as time passes.==>close or
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reduce a duration gap (不通过衍生品，要增 duration，则卖 short term bonds，买 long term bonds，
因为 duration 计算是通过 time x weight 之和，越靠后，time 值也越大) 3O73
Equation 2 Asset portfolio BPV + (Nf × Futures BPV) = Liability portfolio BPV 3O75
Nf = required number of futures contract 3O75
变形式：equation 3: ====================
Nf 为正，long；为负：short. 3O75
Equation 4:
BPVCTD = BPV for cheapest-to-deliver; CFCTD=conversion factor. 3O75

5 Liability-Driven Investing – An Example of a Defined Benefit Pension Plan 3O78
DBP plan 是 type IV liabilities 3O79;
Equation 5 :
PV– is the new value after the yield curve is lowered by ΔCurve, and PV+ is the value after the
yield curve is raised. 3O81
如果 effective duration on ABO(accumulated benefit obligation) & PBO 不同，由此导致二者 BPV
也不同，那组合经理该选择哪个进行 risk 管理？如果公司将要被并购，那么 ABO 合适 3O81
Interest rate swap 3O83

Received fixed 一方 duration = (high)duration
of fixed-rate bond – (low)duration of floating
Rate Note 3O83
Equation 6:
求 Notional Principal on IRS to close the duration gap. 3O83
Hedge Ratio: percentage of the duration gap
to close. 3O83+86
Option-based derivatives overlay strategy:1) receive-fixed swap[based on 4.16% current swap
fixed rate] 2) purchased receiver swaption 3O84[strike price 3.5%]
3) swaption collar（zero-cost）: buy targeted
receiver swaption while writes a payer
swaption[pay swaption strike price
5%-writer receives fixed rate]. 3O84
如何选择以上三种 overlay strategies:
3O84-86 decision-making is facilitated by
breakeven numbers. 3O86 右图 Exhibit 16
Payoffs on Received-Fixed Swap, Receiver
Swaption, and Swaption collar 3O85
这段话最好能配合右图记住：1) expected
swap rate ≤ 4.16%, 选 receive-fixed swap 2) 4.16% < expected swap rate < some figure above
5%, 选 swaption collar 3) At some point above 5.00%, 选 purchased receiver swaption is better
because it limits the loss.
6 Risks in Liability-Driven Investing 3O88 LOS e
Full interest rate hedging = Equation 7 3O88
Asset BPV×ΔAsset-yields + HedgeBPV×ΔHedge-yields≈Liability BPV×ΔLiability-yields
注：ΔAsset yields, ΔHedge yields, and ΔLiability yields are measured in basis points。
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23
其他：1）基于 100%hedge rato 2）约等号因为忽略 higher order terms 比如 convexity

7 Bond Indexes & the Challenges of Matching a Fixed-Income Portfolio to an Index 3O92 LOS f
另外一种 address duration 方法：present value of distribution of cash flows methodology. 96
1）经理将 index 中 non-callable securities 的现金流拆成 discrete semi-annual periods,
aggregates them, 随后将 index 中 callable securities 的现金流 based on the probability of call
for each given period 也加起来
2）present value of aggregated cash flows for each semi-annual period is computed, with
the total present value of all such aggregated cash flows equal to the index’s present value.
The percentage of the present value of each cash flow vertex is calculated. 随后计算步骤如
算 Macaulay duration.
小结：如何保持与 benchmark 一致性：match the percentage of the portfolio’s present value
that comes due at specific time points with that of the index.3O96
Tracking error = standard deviation of a portfolio’s active return for a given period 3O97
比如 fund’s tracking error= 50 bps, 即 for approximately two-thirds of the time period
observations（68% of those returns 基于 normal distribution 结构）,fund’s return to be less than
50 bps above or below the index’s return.
Study Session 11 Fixed-Income Portfolio Management (2)
Reading 23 Yield Curve Strategies

非常少题量，一套 case study 选择题 6 题
2 Foundational Concepts for Active Management of Yield Curves Strategies 3O124 非 LOS
A common measure of yield curve curvatures: 3O129 Equation 1
Butterfly spread = − (Short-term yield) + (2×Medium-term yield) − Long-term yield 3O129
注：当上式所得值正值越大，yield curve has more curvature。3O129
常用式：–(2-Year yield) + (2 × 10-Year yield) – 30-Year yield （都是 Treasury Notes）3O129
2.2 Duration & Convexity 3O130
6. Price value of a basis point: an estimate of a bond’s price change given a 1 basis point change
in yield to maturity 3O130
dollar value of an 0.01 (简称 DV01) : a DV01 of $0.08 is equivalent to 8 cents per 100 points.
3O130PVBP=[(V- - V+)/2] x par value x 0.01 此公式来自 CFA I 级
其中：par value=full price （总 bond 值），0.01 是调整系数（每张 bond 值 100）=>par value x
0.01 = 所购买债券的份数。
3 Major Types of Yield Curves Strategies LOS a
3.2 Strategies for Changes in Market Level, Slope, or Curvature 3O135 LOS b
3.2.1 Duration Management: shortens portfolio duration in anticipation of rising interest
rates(债券价格减) & lengthens portfolio duration in anticipation of declining interest rate(债券
价格增) 3O135 Equation 2: % bond price change ≈ –D × ΔY (in percentage points) 3O136
注：D = modified duration.
3.2.1.1 Using Derivatives to Alter Portfolio Duration 3O137
第一部分：future contracts. 3O138
Money duration = modified duration x market value / 100 即 per one hundred units of par
value.3O138
PVBP = money duration / 10,000 3O138
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1) Number of contracts required = Required additional PVBP ÷ PVBP of the futures contract
2) Additional market value of bonds to be purchased using leverage = Required additional PVBP
x 10,000 / duration of bonds to be purchased and financed. 因子 1、2 相乘得到 additional
money market duration，除以因子 3 得到 additional market value 3O138
3O138
此处 duration 指：duration of assets(含 levered bonds),但不包括 liabilities that funded them.
第二部分：interest rate swaps: flexibility on creation of maturity beyond limited standard
maturities in note or bond futures. 3O139=>receive-fixed position
1) IRS addtional position in USD = Required additional PVBP ÷ PVBP of IRS 3O139
基于 parallel shift in yields.所以存在 curve risk(non-parallel shift)
4 Formulating A Portfolio Positioning Strategy Given A Market View 3O146 LOS c
4.1 Duration Positioning in Anticipation of a Parallel Upward Shift in the Yield Curve 3O146
数据分析小结：Any bond with an implied forward yield change greater than the forecasted
increase in yield(+/- 多少 basis points) can be expected to have a return higher than the current
one-year rate if the forecast rates are realized. 反之亦然. 3O149
Equation 3：Total return≈−1×Ending effective duration × (Ending yield to maturity –Beginning
yield to maturity) + Beginning yield to maturity 3O149
4.2 Portfolio Positioning in Anticipation of a Change in Interest Rates, Direction Uncertain 3O150
预期利率大幅波动，卖 low convexity bonds，买入 high convexity bonds，但要求 match effective
duration between portfolio & index（或者 duration before & after such adjustment 要求一致）：
1) Durations of bond being sold = duration of bond 1 being bought x weight of bond 1 +
duration of bond 2 being bought x weight of bond 2 3O151【2 元一次方程求出 weight】
2) Gain in convexity = (weight of bond 1 x convexity of bond 1 being bought) + (weight of bond
2 x convexity of bond 2 being bought) – convexity of bond being sold
3) Give-up in yield (higher convexity, lower yields) = (weight of bond 1 x YTM of bond 1 being
bought) + (weight of bond 2 xYTM of bond 2 being bought) –YTM of bond being sold
4.3 Performance of Duration-Neutral Bullets, Barbells, and Butterflies Given a Change in the
Yield Curve 3O151
partial price value of a basis point (PPVBP) or partial DV01 (PDV01): price difference of the bond
(or portfolio) in the up 10 bps and down 10 bps cases for one partial point on the curve, and
normalize that to a 1 bp change (divide by 20). 3O155
Predicted portfolio value change = Portfolio par amount × Partial PVBP × (–Curve shift) 3O158
注 curve shift 中 basis point 要除以 100 转换成百分比代入以上公式
6. A Framework for Evaluating Yield Curve Trades 3O178 LOS g
Bond price value change = [−MD × ∆Yield] + [½ × Convexity × (∆Yield)2] 该公式要记住
Reading 24 Fixed-income Active Management: Credit Strategies

2 Investment-grade & high-yield Corporate Bond Portfolios 3O192 LOS a
2.1 Credit Risk 3O193 : 这是 high-yield corporate bond 的最关心及首要 risk.
credit loss rate = default rate x loss given default. 3O193
3 Credit Spread 3O200
3.1 Credit Spread Measures 3O200
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3.1.1 Benchmark Spread & G-Spread 3O200

Benchmark spread = credit security yield – benchmark bond yield(with no or little credit risk)
注：1) benchmark 通常是 on-the-run government bond. 2) 顾虑：maturity mismatch between
benchmark & credit security. 3O200
G-spread = credit security yield – actual or interpolated government bond.
注：When no government bond exists that has the same maturity as the credit security, a linear
interpolation of the yields on two on-the-run government bonds is used as the benchmark rate,
where their weighted average duration matches the credit security’s duration.3O200
好处：1）hedge credit securities’ interest rate risk：sell or sell short duration-weighted amounts
of two benchmark government bonds out of his portfolio 2）estimate yield & price changes for
fixed-rate credit securities that do not have optionality. 3O200
Example 2: Using G-Spread to Calculate Interest Rate Hedges and Price Changes 3O201 再看
设 10 年期政府债券=10s 债，7 年期政府债券=7s 债，credit security=CS
计算步骤： 1）duration match: weighting7s 债=【（effective duration10s 债- effective durationCS
债）/（effective duration10s 债- effective duration7S 债）】3O201
Weighting10s 债=【（effective duration7s 债- effective durationCS 债）/（effective duration10s
债 - effective duration7S 债）】
2) Linearly interpolated yield from 7s&10s 债= weighting7s 债 x yield7s 债+ Weighting10s 债 x
yield 10s 债 3O201
3）Price change CS = Price CS 初始 x【1+（effective duration x -Δinterpolated yield%）】3O201
3.1.2 I-Spread (Interpolated spread) 3O202= risky-bond yield – swap rate for same maturity
当无可参考 swap rate 时，可用 linear Interpolation(I 即使此意)来估算。
Interpolated spread = lower bound spread + (new issuance 与 lower bound duration 差) / (higher
与 lower bound duration 差) * （higher – lower credit spread）3O214 Example 8
3.1.3 Z-spread & Option-Adjusted Spread. 3O203
Z-spread(Zero-volatility spread) : 适合 bonds without embedded options 3O203
coupon payment coupon payment coupon + principal payment
PresentValue= -------------------- +--------------------- + ---------------------------------------
2
( S1+ZS) ( S2+ZS) ( Sn+ZS)n
注：S1, S2…Sn 是 Spot rate for 1 year, 2 year….n year 三级书中也无以上公式
Option-adjusted spread (OAS): 适用于带 option bonds.
The OAS is the constant spread added to all the one-period forward rates on the interest rate tree,
to make arbitrage-free bond value equal to its market price. 3O203
OAS 缺点：1）基于 assumptions on future interest rate volatility. 3O203 2）带 option
bonds’realized spread 一般≠OAS. 3O203
OAS 比起其他 spread measure 的优势（少了多少 bp）：反应 call option value[to issuer]204
3.1.4 Credit Spread Measures in a Portfolio Context 3O204: OAS 最合适，因为反应 optionality.
To calculate a portfolio OAS, each bond’s OAS is weighted by its market value. 3O204
Example 4 OAS of a Portfolio 3O204（可不看）只记住：market value of Bond A = total face value
x 【( current price + accrued interest ) / 100】=>方括号内算出了 1 美元面值 bond 的市价
3.2 Excess Return 3O205
Excess return: a bond return after interest rate risk has been hedged. [as compensation for
assuming credit-related risks] 3O205
Equation 1: XR ≈ (s × t) – (Δs × SD) 基于 no default losses.
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26
注：XR = holding-period excess return； s = spread at the beginning of the holding period,
t = holding period expressed in fractions of a year；Δs = credit spread change during the holding
period=期末值-期初值；SD = spread duration of the bond.==> – (Δs × SD) 是 credit spread 变化
对 bond price value 的影响 3O205
Equation 2: EXR ≈ (s × t) – (Δs × SD) – (t × p × L) 基于 possibility of future default losses.
注 EXR = expected excess return；p = annualized expected probability of default；L = expected
loss severity.  (p × L) = expected annual credit loss. 3O205
4 Credit Strategy Approaches 3O206
4.2 the Top-Down Approach 3O215:
4.2.1.1 Measure Credit Quality in a Top-Down Approach 3O217
4. Duration Times 乘以 Spread = spread duration x OAS; a portfolio’s DTS is a weighted average of
the DTS of its individual bonds. 3O219
Study Session 12 Equity Portfolio Management
Reading 25 Equity Portfolio Management

中等题量，有简答题&case study 共 23 题
3 Approaches to Equity Investment 3O257 LOS b
Active Return = portfolio return – benchmark return 3O258
Tracking risk = annualized standard deviation of active returns, measures active risk 3O258
Information ratio = a portfolio’s mean active return / tracking risk 3O258
3O258
4 Passive Equity Investing 3O258

4.1 Equity Indexes 3O260:
4.1.1 Index Weighting Choices 3O260 LOS d
3) Equal weighted: same amount of money is invested in the shares of each index
component.=>must be rebalanced periodically. 3O261初始投资设为 100，index 有 x 个股票，
每个股票投资额=100/x，该股期末 market value = (100/x)*(1+该时间段%price change)
5 Active Equity Investing 3O276

5.1.4. Techniques for Identifying Investment Styles 3O282 LOS I
1.Returns-based style analysis 3O283
Active selection return = 1 – style fit(即 passive benchmark indexing) 3O285
5.1.5 Equity Style Indexes 3O291 LOS j
5.3 Long-short Investing. 3O297 LOS m: 受限于 selling short stock constraint.
Alpha = portfolio return – required rate of return(on a risk-matched benchmark). 397
6 Semi-Active Equity Investing 3O303 LOS p
Fundamental Law of Active Management: equation 1 3O303
其中：IR = information ratio; IC = information coefficient (effectiveness of investment insight);
Breath: number of independent active investment decisions made each year.
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27
Information ratio = mean active return / tracking risk

7. Manage a Portfolio of Managers 3O306 LOS q
Maximize active return for a given level of active risk determined by his level of aversion to active
risk: 3O306
Equation 2: ===objective function
UA = expected utility of the active return of the manager mix
rA = expected active return of the manager mix
λA = measures risk aversion in active risk terms
σ2A = variance of active return 3O306
Overall portfolio’s active return is a weighted

average of individual managers’ active returns.
3O309 (并非教材指定公式但要背)
hAi = weight assigned to the ith manager
rAi = active return of the ith manager
hAi = weight assigned to ith manager

σAi = active risk of ith manager
该公式也非教材指定公式但要背 3O309
注：因为假设 active returns are uncorrelated, 所以该公式中无 covariance terms. 3O309
7.1 Core-Satellite 3O309 LOS r & s
To evaluate managers specializing within a given range of market capitalization: 3O311
•Manager’s return − Manager’s normal benchmark = Manager’s “true” active return
•Manager’s normal benchmark − Investor’s benchmark = Manager’s “misfit” active return
用 normal benchmark 来评估经理更准确。
“true” active risk : standard deviation of “true” active return

“misfit” risk: standard deviation of “misfit” active return 3O311
Manager’s total active risk =[(Manager’s “true” active risk)2 + (Manager’s “misfit” active risk)2]½
注：1/2 这个平方根是对整个右式而言。3O3011
Most accurate measure of the manager’s risk-adjusted performance: information ratio =
(Manager’s “true” active return)/(Manager’s “true” active risk). 3O311
True/misfit distinction 有两个作用：1）评估经理 2）optimizing a portfolio of managers.3O311
Portable alpha: alpha available to be added to a variety of systematic risk exposures. 比如 a

specific index[只有 beta exposure 即系统性风险]+4%【long-short market neutral strategy 有
alpha 但零 beta】3O313
8 Identify, Select & contract with Equity Portfolio Managers 3O314 LOS u
8.3 Fee Structures 3O315=>net-of-fee alpha
Ad Valorem fees: multiply a percentage by managed assets’value. 也称 Assets under
Management Fees. 3O315
Performance-based fees: base fee + sharing percentage. 其中特质 1）fee cap:限制 ttl fee 2）
high-water mark: 当期所管理总资产数超过最近一期，才有绩效收益。3O315
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CFA III-Alternative Investment 关键词清单 Vol 5

Study Session 13 Alternative Investments for Portfolio Management
Reading 26 Alternative Investments Portfolio Management

4 Private Equity / Venture Capital 3P27
PE Fund managers’ compensations: LOS k
1) incentive fee:也称 carried interest.% of the fund’s total profit. 个别也规定 hurdle rate(也称
preferred return):经理只能拿到当期收益率超过 hurdle rate 部分的 20%。3P35
4.3 Private Equity: Investment Characteristics & Roles. 3P38
Controlling interest: marketability discount 3P40
Minority interest: discount of lack of control * marketability discount 3P39
6 Hedge Funds 3P55
Hedge fund structure: LOS P 3P58
1） Compensation: % of NAV as management fee(也称 asset under management fee) + incentive
fee. High-water-mark provision: The highest month-end NAV establishes a high-water mark.
The incentive fee is 20% of the positive difference between the ending NAV and the HWM
NAV. 3P59
6.4 Performance Evaluation Concerns 3P78 LOS r
一. Return: The rate of return reported is the nominal monthly holding-period return: 3P79
Rate of return = [(Ending portfolio value) – (Beginning portfolio value)]/(Beginning portfolio value)
=>compounded over 12 mos to get annualized return.
注：rolling return: moving average of the holding-period returns for a specified period that
matches the investor’s time horizon. RRn,t = (Rt + Rt–1 + Rt–2 + … + Rt–(n–1))/n 3P79
如 12 个月 time horizion=>RR12,t = (Rt + Rt–1 + Rt–2 + … + Rt–11)/12 3P79
二、Volatility & Downside Volatility: 3P79: 最常用的是 standard deviation of returns.
Annualized SD = monthly SD * square root of 12. 基于 normal distribution. 但 hedge funds 有
skewness & kurtosis，此时 SD 不能代表 HF 的真实 risk。3P80
Downside deviation (也称 semi-deviation): 1) computes deviation from a specified threshold(如
below a specified return, r*); 2) only negative deviations are included. 3)Semi-deviation uses
average monthly return as the threshold. 3P80 4)计算过程同 Standard deviation. 3P80
Where min(A,B) means “A or B, whichever is smaller”

3P80 且所有正差值都归零
Drawdown = difference between a portfolio’s point of maximum NAV for the period (its
high-water mark) and any subsequent low point (until new “high water mark” is reached).
Maximum drawdown = largest difference between a high-water point and a subsequent low. 80
三、Performance Appraisal Measures: 最常用 sharp ratio: Sharpe ratio = (Annualized rate of
return – Annualized risk-free rate)/Annualized standard deviation. 注：annualized risk-free rate
一般是 one-year T-bill yield. 3P80
Sortino ratio: downside risk. => Sortino ratio = (Annualized rate of return – Annualized minimum
acceptable return)/Downside deviation 3P82
Gain-to-loss ratio = (Number of months with positive returns/Number of months with negative
returns) × (Average up-month return/Average down-month return) 3P82 绝对值越大越好
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CFA III-Risk Management 关键词清单 Vol 5

Study Session 14 Risk Management
Reading 27 Risk Management

5 Measuring Risk 3P151
5.2 Value at Risk 3P153 LOS e VaR in units of money = portfolio initial MV * VaR % 3P154
5.2.2 The Analytical or Variance – Covariance Method. 3P155 LOS f
5% VaR 时 Z 值 = -1.65, 1% VaR 时 Z 值= -2.33 3P157
简单记 annual 5% VaR =annual portfolio expected return – 1.65 * annual standard deviation
Annualized portfolio expected return = 250 x daily portfolio expected return. 3P157
Annualized standard deviation = √250 x daily standard deviation 3P157=>通过这两个公式来换算 annual 和
daily VaR. 3P157-158=>注如是 weekly，把 250 换成 52
5.4 Extensions and Supplements to VaR. 3P170
Tail value at risk: 也称 conditional tail expectation = VaR + expected loss in excess of VaR.，比如
整个 worst 5%的 average.
5.6 Measuring Credit Risk 3P173
5.6.1. Option-Pricing Theory and Credit Risk 3P174
Value of stock T = Max ( 0, AT-K )
Value of debt T = Min (AT , K) AT 情况为资不抵债
其中 AT=value of company’s assets at time T (即 at maturity of debt ) K = face value of debt
Value of risky debt = value of risk-free zero coupon bond (paying F at maturity T) – value of put
option on company’s assets(a short put) 3P175（想了解论证过程可见书 3P176）
5.6.2 the Credit Risk of Forward Contract 3P176 LOS I
Market value of a forward contract at a given time reflects a potential credit risk if the
counterparty declares bankruptcy then.（就是该金额）
Value of the long position in a forward contract on a dividend-paying stock at time t: 3J125(二级
材料)
FP=缔约交割价 forward price determined at inception
St = spot price at time t
PVD t = PV of remaining expected discrete dividends at time t
Value currency forward contracts:
St = spot rate at time t
FT=forward currency exchange rate at maturity
合同缔约价
5.6.3 the Credit Risk of Swaps 3P177 LOS i
1) Credit risk 是 market value of swap. 3P177：Market value of a swap (to fixed rate payer) =
value of a floating rate bond – value of a fixed rate bond
6 Managing Risk 3P182
6.1 Manage Market Risk 3P182 LOS j
以下为最简单模型，基础为 zero-coupon bond：(2 级材料)=》S0 改成 St,用左式一求
mark-to-market 后的新 FP
其中
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6.3 Performance Evaluation 3P189 LOS l

1. Sharp ratio: 3P190
缺点：不适用 non-linear risks such as options
2. Risk-Adjusted Return on Capital = expected
return / a measure of capital at risk(或 a measure of investment’s risk) 3P190
3. Return over Maximum Drawdown = average return in a given year / maximum drawdown.
4. Sortino Ratio = (Mean portfolio return – MAR)/Downside deviation
注：MAR = Minimum Acceptable Return 3P191
CFA III-Risk Management Applications of Derivatives 关键词清单 Vol 5
Study Session 15 Risk Management Applications of Derivatives
Reading 28 Risk Management Applications of Forward & Futures Strategies
少量题，有简答题&1 套 case study 共 14 题
2. Strategies & Applications for Managing Interest Rate Risk 3P215 Optional Segment 忽略
2.2.1 Measuring the Risk of a Bond Portfolio 3P219
ΔB ≈ –MDURBBΔyB
注 B = bond price value; MDUR = modified duration. 3P220
2.2.2 Measuring the Risk of Bond Futures
Equation 1 Δf ≈ –MDURffΔyf
where MDURf is the implied modified duration of bond futures, f is the futures price, and Δyf is
the basis point change in the implied yield on the futures.
2.2.3. Balancing the Risk of a Bond Portfolio against the Risk of Bond Futures 3P221
Equation 2: ΔyB = βyΔyf => βy = yield beta.
Completely balance the risk of futures position against risk of the bond portfolio 3P222
即ΔB + NfΔf = 0  Equation 3: Nf = –(MDURB/MDURf) *(B/f)* βy
注：Nf = number of future contracts
Dollar duration = duration * market value.=> target dollar duration of our portfolio = dollar
duration of the bonds we hold + dollar duration of the futures contracts 即 3P222
B*(MDURT) = B*(MDURB) + f*(MDURf)*Nf
注：MURT = target overall modified duration; 3P222
Equation 4:
3P223 当ΔyB = βyΔyf 时用公式 4
即ΔyB 与 Δyf 不是一致变动 one for one.
Ex post modified duration 变相计算方法 = percentage change in portfolio value / basis points
change in portfolio yield. 3P224
3 Strategies & Applications for Managing Equity Market Risk 3P227LOS a 主攻 systematic risk.
3.1 Measuring and Managing the Risk of Equities LOS a 3P228
注：βT 是 target beta，S=stock portfolio market value, Nf=number of future contracts needed; f
= future contract value. 3P229
以上变形的 Equation 5:
3P229
如何计算 f: = future price = quoted futures price * a multiplier。如 if S&P 500 futures price is
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quoted at 1225, the multiplier of $250 makes the actual futures price 1225($250) = $306,250.
3.2 Managing the Risk of an Equity Portfolio 3P230 LOS a
Effective beta = percentage ttl return from stock position & futures / market-as-a-whole return
3.3. Creating Equity out of Cash 3P232 LOS b
Long stock + Short futures = Long risk-free bond （买入股票，再通过 futures 卖出锁定利润
=>reduce stock portfolio beta to zero）
3.3.1 Creating a Synthetic Index Fund 3P233
核心基础：Long stock（index）= Long risk-free bond + Long futures(买 risk-free bond 到期后拿
本金和利息去 settle futures)
Equation 6:
3P234
注：Nf* = rounded-off required number of futures contracts; V = amount of money to be invested;

T=time to expiration of futures(in years) ; r = risk-free rate; q = future price multiplier; f = future
price.
Equation 7:
3P234
注：V* = actual amount of money invested in risk-free bond after rounding-effect

小结：investing V* in bonds + buying Nf* futures contracts at a price of f = buying Nf*q/(1 + δ)T
units of stock. 注：δ = dividend yield on the index. 3P234
Number of units of stock purchased at the start =
3P235
Numbers of units of stock after dividends reinvestment until expiration = Nf*q
3P235
Futures payoff = Nf*qST – Nf*qf=Nf*q*( ST –f). 注：ST = stock price at time T. 诠释：to settle the
futures, one will pay Nf*qf and receive equivalent of Nf*q units of stock with ST. 3P234
3.4 Creating Cash out of Equity. 3P237【stock position 其实不动，但按 stock position whole
market value exposure 去卖了等价（notional principal）的 futures 来折换出 cash】
Long stock + Short futures = Long risk-free bond（此时 long high liquid bond 等于 cash）
Equation 8-1:
多了负号
Equation 8:
3P238
定义不同之前：V* = amount of stock synthetically converted to cash(即 long high liquid bond)
Number of unit of stock purchased at start =
多了负号
其他公式都同 3.3.1 和 3.3.2 3P238
Example 5 3P239 可再看一遍熟悉计算过程，不难。
4 Asset Allocation with Futures 3P241
4.1 Adjusting the Allocation among Asset Classes 3P241 LOS d

Exhibit 6: exposure re-allocation between stock & bond using future contracts. 3P241-243
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经理想从 stock 中退出 X million 进入 bond，可以先 sell stock index futures contract to reduce
beta on the X million of stock from its current level（βS）to zero（即βT=0）【用 Equation 5 计算
这部分 X million 的 S 所需的 Nsf 数量】，然后 buy bond future contracts to increase the duration
of X million cash from zero (MDURB)to desired level (MDURT =一般就= initial portfolio bond
portion duration). 【用 Equation 4 计算这部分 X million 的 B 所需的 Nbf 数量】3P241
提示：即到期后，原有组合的收益与 future positions 的收益先分开算，然后结算总账。3P243
Exhibit 7: Exposure re-allocation between bonds. 3P243-245 可再看一遍
Bond portfolio value = X + Y, 其中 X million 要 reduce duration to money market level 而 y
million 要增 duration. 都使用 Equation 4 来计算所需 future contracts(分别设 B = X or Y)，但
sell&buy 同样的 futures,实际操作为 netting 后结果。
重复强调：原有的 bond portfolio 其实从始至终都未被动过，即到期后，原有组合的收益与
future positions 的收益先分开算，然后结算总账。3P245
Exhibit 8. Adjusting the Allocation between One Equity Class and Another 3P245 可再看一遍
算法类似 Exhibit 6：一个纯 stock 组合，经理想从 large-cap stock 中退出 X million 进入 mid-cap
stock，可以先 sell large cap futures to reduce beta on the X million of stock from its current level
（βS）to zero（即βT=0）【用 Equation 5 计算这部分 X million 的 S 所需的 NLf 数量】并获得 X
million cash equivalent exposure(但实际没有 cash 产生)，然后 buy mid-cap futures to increase
the beta of X million cash from zero (MDURB)to desired level (MDURT =一般就= initial mid cap
beta). 【还是用 Equation 5 计算这部分 X million 的 S 所需的 NMf 数量】3P245
重复强调：原有的 stock portfolio 其实从始至终都未被动过，即到期后，原有组合的收益与
future positions 的收益先分开算，然后结算总账。3P246
Example 6:重复 Exhibit 6 但有调整后组合自身的 beta 和 duration 再调整 3P246 有时间再看
4.2 Pre-Investing in an Asset Class: 当投资机会出现时不一定有 cash。Futures contracts do not
require an immediate cash outlay but can be used to add exposure.3P248
Exhibit 9：未来某一时间内将收到合计 X + Y million 的 fund，目前通过 futures 分别 gain
exposure to X mil stock 和 Y mil bond. 先 buy X million stock index futures contract to increase X
mil cash beta from zero（βS =0）to market level（即βT）【用 Equation 5 计算这部分 X million
的 S 所需的 Nsf 数量】。然后 buy bond future contracts to increase the duration of Y million cash
from zero (MDURB)to desired level (MDURT = initial bond duration). 【用 Equation 4 计算这部分
Y million 的 B 所需的 Nbf 数量】3P248-249
5. Strategies & Applications for Managing Foreign Currency Risk 3P250
5.3. Managing the Risk of a Foreign-Market Asset Portfolio 3P254 LOS g
Exhibit 12: 1) hedge equity market risk only: 使用 equation 5 得出 number of future contracts,
其中βT =0(target beta) & βS=initial stock portfolio beta 该例题可再看一遍
2) Hedging both foreign equity market risk & foreign currency risk: hedge equity market risk 同 1)，
然后 It enters into a currency forward contract to lock in the exchange rate on a certain amount
of foreign currency on expiration date. 到期要卖多少外币？If the equity futures contract
hedges the stock portfolio, it should earn the foreign risk-free rate. 到期时 portfolio value =
initial foreign investment in foreign currency * risk-free rate in that foreign country， and will
convert this amount back to domestic currency.这也是 notional principal on currency forward
contract 3P256
注：stock portfolio return = market return * beta of the portfolio 3P256
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Reading 29 Risk Management Applications of Option Strategies

少量题，有简答题&1 套 case study 共 12 题
2 Option Strategies for Equity Portfolios 3P277
2.2. Risk Management Strategies with Options and the Underlying 3P286
2.2.1. Covered Calls 3P286 LOS a
Covered call: long stock + short call 二级材料
Sep 25 call  a call option expires on September with an
X price of$25
Covered call 的重要关系：3J206
起始投资 = S0 – C0 ; Underlying Position Value at expiration = ST – max (0, ST-X)
到期 profit = ST – max (0, ST-X) – ( S0-C0); Max profit = X –S0 + C0; Max loss = S0 – C0 ；
Break even = S0-C0 3P287
2.2.2 Protective Put 3P290 LOS a
Protective Put: long stock + long put 二级材料
起始投资 = Breakeven = S0 + P0 ;
Underlying value at expiration: VT = ST + max(0,X – ST)
到期 profit = max (ST, X) – ( S0+P0); Max profit = ST –(S0 + P0)即∞; Max loss = S0 + P0 – X;
Policy deductible = S0 – X 3P290
2.3 Money Spread 3P293: LOS b 定义 buy one option and sell another option that is identical
to the first in all respects except exercise price. 3P293
2.3.1 Bull Spreads: 3P293
Bull spreads: X price long option < X price short option
Bull call spread: long low X price call + short high X price call 3P293
CL0 和 CH0 为 call prices at inception.
profit on the spread = net payoff at expiration – initial net cost.
Spread Value at expiration: VT = max(0,ST – XL0) – max(0,ST – XH0) 3P295
到期 Profit= max(0,ST – XL0) – max(0,ST – XH0) - (CL0-CH0)
Initial net cost = CL0-CH0 = Max loss ; Max profit = XH – XL – (CL0-CH0)
Breakeven price = XL +(CL0-CH0)
Exhibit 8: Bull Spread (Buy Call with

Exercise Price X1, Sell Call with
Exercise Price X2) 3P295
2.3.2 Bear Spreads 3P296

<1> Bear Call Spread: 赌股价涨不
过 XL short a low X price call + long
a higher X price call
<2>Bear Put Spread: long a higher X
price put + short a lower X price put
二级材料
The long side (buyer) in a put option is the one who has the right to sell the option at a specific
price. （Put option 的买方拥有以执行价格出售的权利）。3P298
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Initial net cost =PH0 – PL0 = Max loss

Spread Value at expiration: VT = max (0, XH – ST) – max (0, XL-ST)
Break even price= XH - (PH0 – PL0)
Profit = max (0, XH – ST) – max (0, XL-ST) – (PH0 – PL0)
Max profit = XH – XL - (PH0 – PL0)
Exhibit 9: Bear Spread (Buy Put with
Exercise Price X2, Sell Put with Exercise
Price X1) 3P298
2.3.3 Butterfly Spreads 3P299:

<1> Butterfly Call Spreads: combines a bull call & bear call spread.
基于 low volatility in the underlying；如果预期底产波动大，该 sell butterfly spread. 3P302
1) long a bull call spread = Long CL0 + Short CH0
2) long a bear spread = short CH0 + Long CEH0 注 CEH0= Call at even higher price at initiation
VT = max(0,ST – X L0) – 2max(0,ST – X H0) + max(0,ST – X EH0) 3P302
注：但 ST≥XEH0 时，VT=2XH0 – XL0 – XEH0 = 0. X L0, X H0 & X EH0 equally spaced 3P300
Initial Costs = V0 = CL0 - 2 CH0 + CEH0 （一般都是正数）= Maximum loss
到期 Profit = VT-V0 = max(0,ST – X L0) – 2max(0,ST – X H0) + max(0,ST – X EH0) – (CL0 - 2 CH0 + CEH0)；
Maximum profit = X H0 –X L0 –(CL0 - 2 CH0 + CEH0) ；
Breakeven = X L0 + (CL0 - 2 CH0 + CEH0)【X L0< ST< X H0】或 = 2X H0 – X L0 – (CL0 - 2 CH0 + CEH0)【X H0 ≤
ST< X EH0】
Exhibit 10: Butterfly Spread (Buy Calls

with Exercise Price X L0 and X EH0, Sell
Two Calls with Exercise Price X H0)
3P301 =>example 7 3P302
<1> Butterfly Put Spreads: 3P302-303

1) long a bear put spread = Long P EH0 + Short PH0
2) sell a bear put spread = short PH0 + Long PL0 注 PEH0= Put at even higher price at initiation
VT = max(0, X EH0 - ST ) – 2max(0,X H0 - ST ) + max(0, X L0 - ST ) 3P303
注：但 ST≤XL0 时，VT=2XH0 – XL0 – XEH0 = 0. X L0, X H0 & X EH0 equally spaced 3P300
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Initial Costs = V0 = PEH0 - 2 PH0 + PL0 （一般都是正数）= Maximum loss

到期 Profit = VT-V0 = max(0, X EH0 - ST ) – 2max(0,X H0 - ST ) + max(0, X L0 - ST ) – (PEH0 - 2 PH0 + PL0)；
Maximum profit = X EH0 –X H0 –(PEH0 - 2 PH0 + PL0) 3P303
Breakeven = X L0 + (PEH0 - 2 PH0 + PL0)【X L0< ST< X H0】或 = 2X H0 – X L0 – (PEH0 - 2 PH0 + PL0)【X H0 ≤
ST< X EH0】=>Example 7 3P302-303
2.4. Combinations of Calls and Puts 3P304 LOS b
2.4.1. Collars 3P304
Collar = long a protective put + long a stock + short a covered call 3P304
合适的 exercise price 使 long put premium = short call premium，形成 zero-cost collar. 一般 put
strike < call strike. =>以下公式全假定是 Zero collar, 即 P0 + C0 = 0】
Underlying position value at expiration = ST + max ( 0, XL-ST) – max (0,ST-XH) 3P305
Initial cost = V0 = S0 = breakeven 【注：Zero collar，P0 + C0 = 0】3P305
profit = VT-V0 = (ST-S0) + max ( 0, XL-ST) – max (0,ST-XH) 3P306
max profit = XH – S0 ；max loss = S0 –XL
Exhibit 11. Zero-Cost Collar (Buy Put with

Exercise Price X1, Sell Call with Exercise Price
X2, Put and Call Premiums Offset) 3P306
Example 8 计算应用 3P306
2.4.2 Straddle 3P307 基于 high volatility => long straddle = long call + long put [same strike
price on same underlying stock with same expiration]. 3P307
Long straddle 看不清市场方向但认为将来有大波动；short straddle 方也看不清市场方向但认
为将来无波动。
Underlying straddle value at expiration = VT = max(0,ST – X) + max(0,X – ST). 3P307
Initial cost = V0 = C0+P0 = max loss 3P308
到期 profit = max ( 0, ST – X ) + max (0, X - ST) – (C0+P0 ) 3P308
max profit = ST – X - (C0+P0) = ∞
breakeven price = X + (C0+P0) 或 X -
(C0+P0)
Exhibit 12: Straddle (Buy Call and Put with

Exercise Price X) 3P308
Straddle 变种：1）strap: add a call to a

straddle ( 看涨 ) 2) strip: add a put to
straddle(看跌)；
3) strangle: put & call have different exercise
prices. 3P309
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2.4.3 Box Spreads: 3P310 1) long a bull call spread = Long CL0 + Short CH0
2) Long a bear put spread = long PH0 + short PL0  Box spread = 1) + 2) 3P310
Box spread value at expiration = VT=max(0,ST−XL0)−max(0,ST−XH0) + max(0,XH0−ST)−max(0,XL0−ST)
其中 VT=0−0+XH0−ST−(XL0−ST)=XH0−XL0 , if ST≤XL0
VT=ST−XL0 – 0 + XH0−ST − 0=XH0−XL0, if XL0<ST<XH0
VT=ST−X L0−(ST−X H0)+ 0 − 0= XH0−XL0, if ST≥XH0 3P310 =>所以 VT = XH0−XL0
到期 profit = XH0−XL0 – [ (CL0-CH0)+(PH0-PL0) ] 3P311
注：Transaction is risk-free，所以当 box spread is fairly priced 时，
(XH0−XL0) / (1+r)T= (CL0-CH0) + (PH0-PL0) 3P311 r = risk-free rate
但当 end payoff PV of XH0−XL0 > initial value of (CL0-CH0)+(PH0-PL0), box spread is under-priced
则应该 long（此时有高于 risk-free rate 的回报）；反之应该 short. 3P311
Maximum profit = (same as profit) 3P311
Maximum loss = (no loss is possible, given fair option prices)
Breakeven: no breakeven; the transaction always earns the risk-free rate, given fair option prices
Example 10 =>为熟悉以上内容可再看一遍 3P 312
3 Interest Rate Option Strategies 3P312: LOS c

利率在贷款开始前定，但 payoff 在 underlying loan 到期后才 settle.3P312
<=payoff of an interest rate
call option: 3P313
注：days in underlying = maturity of the instrument from which the underlying rate is taken.313
payoff of an interest rate put => 3P313
3.1. Using Interest Rate Calls with Borrowing 3P313 (floating-rate loan) LOS c
第一步：计算所购的 call premium value at call expiration = call premium * [1+(Libor rate on call
purchase date+any attached basis points) *( call purchase day until call expiration / 360)] 3P314
第二步：effective loan proceeds（所贷款）= intended amount – 第一步 call premium value at
call expiration. 3P314
第三部：effective interest paid at loan maturity = [min (call option exercise rate, libor rate on loan
start date)+any attached basis points]*( underlying loan days / 360)* intended loan amount.
第四部：effective annualized rate = 【(intended loan amount +
effective interest paid at loan maturity) / 第二步 effective loan
proceeds】365 / underlying loan days – 1 3P314
Exhibit 13. Outcomes for an Anticipated Loan Protected
with an Interest Rate Call 3P315
3.2. Using Interest Rate Puts with Lending 3P318 LOS c
第一步：计算所购的 put premium value at put expiration =
put premium * [1+(Libor rate on put purchase date+any
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attached basis points) *( put purchase day until put expiration / 360)] 3P318
第二步：effective loan outlay（所借出款项）= intended amount + 第一步 put premium value at
put expiration. 3P319
第三部：effective interest paid at loan maturity =[max (put option exercise rate, libor rate on loan
start date)+any attached basis points]*( underlying loan days / 360)* intended loan amount.
第四部：effective annualized rate =【(intended loan amount
+ effective interest paid at loan maturity) / 第二步 effective
loan outlay】365 / underlying loan days – 1 3P319
Exhibit 15. Outcomes for an Anticipated Loan Protected
with an Interest Rate Put 3P319
3.3. Using an Interest Rate Cap with a Floating-Rate Loan

LOS d 3P323 只要求计算 payoffs: from borrower view:
an interest rate cap:一组利率 call options with different
maturities & same exercise price.买 I.R.cap 可 hedge a
floating rate loan => Caplets: the component options 3P323
注：1) 一个 floating rate loan for multiple period N, 第一期 rate 是已知的（假设贷款后才买入
cap），所以所需要 caplets 共 N-1 个。3P323
2) The payoff of each caplet will be determined on its expiration date 但 will actually be made on
next payment date(与每期期末的 add-on interest due 一起结算). 3P323
计算过程：
每期 Loan interest due= intended loan amount * (Libor on previous reset date 就指当期期初 libor
+ any attached basis points) * ( Days in settlement period/ 360) 3P323
Caplet payoff = intended loan amount * max (0, Libor on previous reset date 当期期初 libor –call
exercise rate) * ( Days in settlement period/ 360) 3P325
每期 effective interest = 每期 loan interest due – caplet payoff = intended loan amount * [min
(exercise rate, Libor on previous reset date) + any attached basis points]* ( Days in settlement
period/ 360)3P325 =>Exhibit 17 Interest rate cap 为熟悉计算可再看一遍 3P324-326
3.4. Using an Interest Rate Floor with a Floating-Rate Loan 3P327 LOS d 只要求计算 payoffs
From lender view: protect interest rate falls=> a combination of put options with same exercise
price but different maturity.=>floorlets: component options 3P327
1) The payoff of each floorlet will be determined on its expiration date 但 will actually be made on
next payment date. 3P327
计算过程：
每期 Loan interest due= intended loan amount * (Libor on previous reset date 就指当期期初 libor
+ any attached basis points) * ( Days in settlement period/ 360) 3P328
Floorlet payoff = intended loan amount * max (0, put exercise rate- Libor on previous reset date
当期期初 libor ) * ( Days in settlement period/ 360) 3P329
每期 effective interest = 每期 loan interest due + floorlet payoff = intended loan amount *
[max(exercise rate, Libor on previous reset date) + any attached basis points]* ( Days in
settlement period/ 360)3P328 =>Exhibit 18 Interest rate floor 可再看一遍 3P327-329
3.5. Using an Interest Rate Collar with a Floating-Rate Loan 3P329 LOS d
多数是 From borrower view: long a cap & short a floor.卖 floor 赚钱贴 cap.329 =>Xfloor < X Cap 330
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计算过程：
Caplet & floorlet payoffs 同 3.3 和 3.4 计算过程 3P331
不同之处：effective interest = interest due – caplet payoff – floorlet payoff. 其中 floorlet payoff
本身是负数。3P331 比较变通的方法是，看当期期初 libor 是高于 caplet X rate 还是低于
floorlet X rate 还是介于两者之间，来决定该等式取 caplet payoff 还是 floorlet payoff=>Exhibit
19 Interest rate collar 3P330-332
4 Option Portfolio Risk Management Strategies 3P333 针对 dealers 的风险敞口 LOS e
Delta = Δcall /ΔS 介于 0.0 到 1 之间 3P334=>Δcall = Delta * ΔS
其中：Nc =number of calls ; NS = number of underlying 3P334
<=背 3P334
Delta changes if anything else changes: underlying price & time. 3P334
4.1. Delta Hedging an Option over Time 3P335 LOS e
a Delta-estimated call price = Original call price + (New price of underlying – Original price of
underlying) * Delta. 3P336
Next-day Benchmark = market value of previous day * [1+(rc/365)] 注: rc =continuously

compounded interest rate 3P341
Units of underlying purchased = (Units of underlying required one day) – (Units of underlying
required previous day) 3P338
Value of Bonds purchased = –S(Units of underlying purchased) 注：如果买入底产，则需借款
(issue risk-free bond)，Bond purchased 为负；如果是卖出底产，则将收入先还清之前贷款，
然后投入 risk-free rate bond 投资[S=underlying asset unit value]
Bond balance = (Previous balance) *[1+(rc/365)] + Bonds purchased 注: rc =continuously
compounded interest rate 3P338
Value of portfolio = (Units of underlying)*Sunit-price + (Units of options)*cunit-price + Bond balance
详细计算见书 337-339 页。【注：S 和 C 的符号是相反的，short option 的话为负】
Alternative way: 用 long underlying 来 hedge short option position 太贵，改用同底产 option with
different exercise price & expiration 来 hedge: 3P339
= - (Delta Option 2 / Delta Option 1) 3P339
Example 16 3P340 建议再看一遍熟悉计算过程和陈述措辞
Reading 30 Risk Management Applications of Swap Strategies

大量题，有简答题&3 套 case study 共 26 题
2 Strategies & Applications for Managing Interest Rate Risk 3P359
2.1. Using Interest Rate Swaps to Convert a Floating-Rate Loan to a Fixed-Rate Loan (and Vice
Versa) 3P359 LOS a & b
Add-on interest rate:期初设 rate,期末结算：每期 floating rate payment= loan amount * (期初
libor established at previous reset day + any attached basis points) * (每期 actual days / 360)
a floating-rate bond’s duration ≈
amount of time remaining until the
next coupon payment. 3P361
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Duration of a swap (pay-fixed & receive floating) = duration of (long) a floating rate bond –
duration of (short) fixed-rate bond. 3P362=>为负
2.2. Using Swaps to Adjust the Duration of a Fixed-Income Portfolio 3P363 LOS d
Fixed income portfolio duration 为正，reduce duration 必须加入 duration 为负的 interest rate
swap=买入 pay-fixed receiving floating 的 IRS. 3P364
B = bond portfolio market value;
MDURT = Target modified duration;
MDURB = initial portfolio modified duration; MDURs = interest rate swap modified duration 3P365
Example 2 3P365
Duration of a M-year floating-rate bond with ttl N periodic payments = 1*M / (2*N) 3P365
Duration of a M-year fixed rate bond = M * durationfixed-rate bond 3P365
2.3. Using Swaps to Create and Manage the Risk of Structured Notes 3P366
2.3.1. Using Swaps to Create and Manage the Risk of Leveraged Floating-Rate Notes 3P366
Leveraged floating-rate notes (leveraged floater): a leveraged structured note with a principal of
FP that pays an interest rate of 1.5 times Libor =>leverage 指 coupon is a multiple of a specific
market rate of interest such as Libor 3P366
操作步骤分解：1）KAT 先问 LifeCo 贷款，付息 1.5 倍 libor*FP(face/principal value) 2）KAT 拿
着借款去买 American Factories 的 fixed rate bond，收 ci（fixed interest rate on a bond）*1.5FP
3）与 Omega 签 payer swap，notional principal of 1.5FP，付 FS（fixed rate on swap）
，收 floating
rate of Libor. =>付给 LifeCo 的 floating 被 Omega 的 swap 完全抵消，net effect 是从 American
所收的 1.5 (ci)(FP) 与向 Omega 所付的 1.5(FS)(FP)之差即 net effect = 1.5 * FP *(ci – FS)
3P367
当 the bond has greater
credit risk than the swap
时，net effect 正数
Example 3 可再看一遍，
对上述过程的再重复 367
2.3.2. Using Swaps to Create and Manage the Risk of Inverse Floaters 3P368
Inverse floater: pay a rate of
( b – libor) =>1）Vega 先问
Metrics 贷款，付息(B-Libor)
*FP(face/principal value) 2）
Vega 拿着借款去买 Telltale
的 fixed rate bond，收 ci
（ fixed interest rate on a
bond）*FP
3）Vega 签 receiver swap，
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再次收 fixed rate，付 floating rate=>再次完全消除浮息 L 的影响。Net effect = FP*(FS+ci - b)

3P 368
显然 b 越低越好，但这样步骤一的浮息贷款（b-L）FP 吸引力越低。3P368；但 inverse floater
购买方不会让 b-L＜0，所以 vega 还要买 interest rate cap with X rate of b 来对冲 b < L 的风险。
Price paid for the cap is an additional cost. 3P369 => Example 4 3P370
3 Strategies & Applications for Managing Exchange Rate Risk 3P370

3.1. Converting a Loan in One Currency into a Loan
in Another Currency 3P370
Currency swaps: 缔约时有 currencies （ notional
principals）exchange hands.
Exhibit 4. Issuing a Pound-Denominated Bond and
Using a Currency Swap to Convert to a
Euro-Denominated Bond 3P372
1）双方各取自身在本国借贷市场的 credit rating
优势，借贷相对成本低的钱。3P372
2） SB 提供的 SWAP rate 低于 Rotech 自身在英国
的借款 rate，因为 SWAP 是 London banking systems
之间的拆借利率，风险低，所以借方要息低。3P373
Example 5: 本节小结 3P374 再看一遍
3.2.Converting Foreign Cash Receipts into Domestic

Currency 3P375 LOS f
There is no initial or final exchange of notional
principals.
A 公司在 B 国有分公司，产生 C 万 B 国货币年收
入，分 D 期打给 A 公司。Current X rate = N，fixed
rate on a currency swap in B 国货币=X%（年化）；
fixed rate on a currency swap in A 国货币=Y%（年
化）；
B 国货币 swap notional principal = C / X% （把定期
汇款当成利息支出）
Equivalent A 国货币 notional principal = C/x% *N 3P376
这类 currency swap 自己支出的是 B 国货币，收入的是 A 国货币=>Example 6 3P376 再看一遍
CFA III-Trading & Rebalancing 关键词清单 Vol 6

Study Session 16 Trading, Monitoring & Rebalancing
Reading 31 Execution of Portfolio Decisions
中量题，有长篇简答题 & 1 套 case study 共 15 题
2 the Context of Trading: Market Microstructure 3Q7
2.2.1. Quote-Driven (Dealer) Markets 3Q10：LOS b
Quoted bid-ask spread (market quote spread) / quote midpoint = a measure of transaction cost
3Q12
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Effective spread = 2 * (market quote midpoint - actual execution price)，当 parts of the order
execute at different prices, 公式 = 2* (market quote midpoint - weighted-average execution
price) . 3Q12
Average effective spread = mean effective spread (sometimes dollar weighted) over all
transactions in the stock in the period under study.==>measure liquidity of a security market 13
3 the Costs of Trading 3Q21
3.1. Transaction Cost Components 3Q22: LOS e,f &g TTL cost = Explicit Costs + Implicit Costs
Implicit cost measure: 3Q23
1. Volume-weighted average price: ∑ (each trade volume / whole day volume) *each trade
price 3Q23 =>buy order implicit cost = each trade vol * ( each trade price – VWAP)
2. Implementation shortfall:= money return on a notional or paper portfolio in which positions
are established at the prevailing price when the decision to trade is made (也称 decision
price, arrival price, 或 strike price) - actual portfolio’s return. 3Q24 考虑 both explicit 和
implicit costs. 3Q24
其中：paper portfolio return = 整个交易过程最后一天的 close price*原计划买入量 – 交易过
程整体实施前一天的 close price（即 decision price）*原计划买入量
Actual portfolio return = 交易过程最后一天的 close price*实际买入量 – 成交当天成交价*实
际买入量 – explicit costs(佣金等)  书 3Q25 有具体案例需再看
Implementation shortfall 可拆成以下 4 个 components：以下计算为 buy-order
1） Explicit costs 3Q25 = 佣金等/ { decision price*原计划买入量}
2） Realized profit / loss = {实际买入量*(成交价-成交昨一天 close 价)} / { decision price*原计
划买入量} price movement
3） Delay cost(slippage) ={实际买入量*(成交昨一天 close 价-decision price)} / {decision price*
原计划买入量} 成交昨一天 close 价：即 close-to-close price movement over the day when
下单当天未成交。3Q25
4） Missed trade opportunity cost = {not-filled order 量*(交易过程最后一天的 close price 也即
trade cancellation price - decision price 也即 original benchmark price)} / {decision price*原
计划买入量} 3Q26 sell-order 用 benchmark price – trade price. 3Q26
3.2. Pretrade Analysis: Econometric Models for (implicit transaction) Costs 3Q30 LOS h
Round-trip transaction costs = entry + exit costs. 3Q31
Pretrade analysis 是 regression analysis for non-linear relationship. 作用 1）pretrade costs 与实
际 costs 对比评估 execution quality 2）协助组合经理首先 gauge right trade size. 3Q31
Example 8 An Econometric Model for Transaction Costs 3Q31 可再看一遍，就是 regression
analysis 计算，简单 Pred. ΔCost = 0.25 + 1.31 ln(Mkt Cap) – 14.91(US Share) + 1.64 ln(Order
Size) – 1.40(High Tech)。注意：ln(market cap)的单位，如果定义是 company market cap in
millions of USD，那么 100 mil usd 代入公式时就是 100。【不是 100,000,000】 3Q31-31
5 Trade Execution Decisions & Tactics 3Q36

5.3.3. The Reasoning behind Logical Participation Algorithmic Strategies 3Q45 LOS l
Factors to determine the selection of a specific algorithmic trading strategy: 3Q46 LOS l
一、Size/ average daily volume【这是一个比值】小且 spread 和 urgency low，VWAP 合适 3Q46
二、Size/ average volume 小但 urgency high, Implementation shortfall 合适。
三、Size/ average volume 大，找 broker 或者 crossing system 来 mitigate large spreads. 3Q46
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Reading 32 Monitoring & Rebalancing

中量题，有简答题 & 1 套 case study 共 25 题
3 Rebalancing the Portfolio 3Q84
3.2.2. Percentage-of-Portfolio Rebalancing 3Q90:也称 percent-range or interval rebalancing.
set rebalancing thresholds or trigger points stated as a percentage of the portfolio’s value.如
40%+/- 5%
如何设置 corridor or tolerance band for that asset class value: a formula based on a percentage
of the target allocation, target ± (target allocation × P%) 其中 P = max percentage change 缺点：
不考虑 differences in transaction costs in rebalancing different asset classes. 3Q91
3.3. The Perold–Sharpe Analysis of Rebalancing Strategies 3Q94 LOS h, i & j
3.3.1. Buy-and-Hold Strategies 3Q95: passive strategys a drifting asset mix.
Portfolio value = Investment in stocks + Floor value(投资 risk free bond 假设 zero return,等同于
cash) 3Q95
Equation 1: Investment in stocks = Cushion = Portfolio value – Floor value 3Q95
Portfolio return = (Percent in stocks) × (Return on stocks) 【基于 risk-free asset 零回报】 3Q95
3.3.2. Constant-Mix Strategies 3Q96: rebalancing to strategic asset allocation, react to market
movements. Equation 2: Target investment in stocks = m × Portfolio value 其中 0<m<1 3Q96
注：1)strong bull market：buy-and-hold 更好,more upside return；strong bear market 也是 96
3.3.3. A Constant-Proportion Strategy: CPPI 3Q97
Equation 3: Target investment in stocks = m × (Portfolio value – Floor value) 3Q97
注：当 m > 1, the constant-proportion strategy is called constant-proportion portfolio insurance
3) buy-and-hold 中 fixed investment in bills, 但 CPPI 中是 dynamic floor value of bill investment，
即股价涨，stock investment 涨幅超过股价 1:1【因为 multiple 常数 m】，bill 投资相应剧减；
股价跌，stock 投资跌幅超过股价 1:1，bill 投资剧增直到 floor value. 3Q97
CFA III-Performance Evaluation 关键词清单 Vol 6

Study Session 17 Performance Evaluation
Reading 33 Evaluating Portfolio Performance
中量题，有长篇简答题 & 1 套 case study 共 25 题
4 Performance Measurement 3Q123
4.1. Performance Measurement without Intraperiod External Cash Flows 3Q123
Equation 1(no external cash flows) : 3Q123
MV 1 = 期末 market value
MV 0 = 期初 market value
Equation 2 (期初有 external cash flows): 3Q124
Equation 3 (期末有 external cash flows) 3Q124
4.3 the Time-Weighted Rate of Return 3Q126 LOS c

考虑 intraperiod external cash flows: 用 subperiods 把整个 evaluation period 断开，每个
subperiod 期末有 external cash inflow 按公式 3 计算【确保题中明确有 external cash inflow 那
些天的 market value 值包含 these cash inflows】。Example 3 再看一遍 3Q127
Chain-linking: equation 4: rtwr = (1 + rt,1) × (1 + rt,2) × … × (1 + rt,n) – 1 3Q128
42
43
【注意结果不一定是 annualized 的】
4.4. The Money-Weighted Rate of Return 3Q128 LOS c 也称 internal rate of return.
Equation 5：MV1 = MV0(1 + R)m + CF1(1 + R)m–L(1) + … + CFn(1 + R)m–L(n) 3Q128

其中：m = number of time units in the evaluation period (for example, the number of days in the
month)
CFi = the ith cash flow
L(i) = number of time units by which the ith cash flow is separated from the beginning of the
evaluation period 3Q129
注：R = money-weighted return normally on daily basis. Example 5 3Q129 可再看
4.6. The Linked Internal Rate of Return 3Q131
Linked Internal Rate of Return (LIRR) method: TWR should be approximated by calculating the
MWR over reasonably frequent time intervals and then chain-linking those returns over the
entire evaluation period. 3Q131 Example 7 3Q132
4.7. Annualized Return 3Q132
If the total investment period > one year, you must take the geometric mean（几何平均数/开根
根=number of years in measurement period） Example 8 3Q132
5 Benchmarks 3Q133
5.1 Concept of a Benchmark 3Q134 LOS e
Equation 6: Portfolio = Benchmark + Active Management Decisions. 3Q134
Equation 7: Portfolio = Market index + Manager’s investment style + Active Management
Decisions. 3Q134
其中：Manager’s investment style = Benchmark – Market index. 3Q134 比如 market index 是
S&P 500，而 benchmark 可能是 S&P 500 中的权重股指数。
5.3 Types of Benchmarks 3Q136 LOS f
5. Factor-Model-Based: equation 8: Rp = ap + βpRI + εp 3Q137 (one-factor model)
注：Rp =periodic return on the market index; RI = return on market index; εp = residual or
nonsystematic element. βp = the sensitivity of the returns on the account to the returns on the
market index; ap = “zero factor” term. 3Q138
5.6. Tests of Benchmark Quality 3Q142 LOS i
1. Systematic biases: Over time, there should be minimal systematic biases or risks in the
benchmark relative to the account. 测试方法：1）计算 historical beta of account relative to
benchmark ≈ 1 on average 3Q14 2）correlation between A = (P – B) and S = (B – M)a
good benchmark will display a correlation between A and S that is not statistically different from
zero. 3）E (difference) = account portfolio – market index  a manager’s style (S) is in favor
relative to the market, both the benchmark and the account outperform the market. a good
benchmark will have a statistically significant positive correlation coefficient between S and E.
3Q142
5. (Benchmark) Turnover: proportion of benchmark’s market value allocated to purchases during
a periodic rebalancing of benchmark. Because benchmark should be investable, turnover should
not be so excessive as to preclude a passively managed portfolio strategy. 3Q143
6. Positive Active Positions: An active position = an account’s allocation to a security -
corresponding weight of same security in benchmark；negative active positions 使 benchmark 不
能反映经理投资 approach. 3Q143
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5.7. Hedge Funds and Hedge Fund Benchmarks 3Q143

Hedge funds: expose investors to a particular investment opportunity while minimizing (or
hedging) other investment risks that could impact the outcome. #143
因为 long-short position 可能使 initial market value=0(active weights sum = 0)，公式 1 不能用，
推荐公式 9：3Q144
rv = rp – rB where rν = value-added return; rp = portfolio return; rB = benchmark return
6 Performance Attribution （定量分析）3Q146

6.4. Conducting a Macro Attribution Analysis 3Q150 LOS l
以下 6 点被当成 investment strategies，each investment results are compared to cumulative
results of previous levels. 随数字变大，有 increasing volatility & complexity.  Macro
attribution calculates incremental contribution that choice to move to next strategy
produces.3Q150 分析按照以下 6 点数字顺序逐步叠加剖析。
注:Each decision-making level represents a valid benchmark (investment alternative). 3Q150
1)Net Contributions: (contribution or withdrawl) invested at a rate of zero. 3Q151
2)Risk-Free Asset: 3Q151
3)Asset Categories: the Fund’s beginning value and external cash flows are invested passively in a
combination of the designated asset category benchmarkspure index fund approach.
Equation 10(return-metric):
注： rAC = incremental return contribution of Asset Category
investment strategy, rCi = return on the ith asset category,
rf =risk-free return, wi = policy weight assigned to asset category i,
and A = the number of asset categories. 3Q151-152
4)Benchmarks: represent managers’investment styles. 3Q152misfit return (style bias)
=benchmark return – asset category return 注：benchmark return = 1-4 步 ttl return；asset
category return = 1-3 步 ttl return. 3Q153
Equation 11(return-metric):
注: rIS =incremental return contribution of the Benchmarks
strategy, rBij = return for the jth manager’s benchmark in asset
category i, rCi = return on the ith asset category[market index],
wi = policy weight assigned to the ith asset category, wij = policy weight assigned to the jth
manager in asset category i, and A and M are the number of asset categories and managers.
3Q152
5)Investment Managers or Value of Active Management: further deviation from benchmark:
managers’ active bets based on actual portfolio.Equation 12(return-metric): 3Q153
注： rIM =incremental return contribution of Active
Management strategy, rAij=actual return on the jth manager’s
portfolio within asset category i
6)Allocation Effects: Allocation Effects incremental contribution is a reconciling factor = Fund’s
ending value - value calculated at the Investment Managers level(1-5 步 ttl value) 3Q154
源于：fund sponsors deviate from their policy allocations to asset categories & managers.3Q154
6.5. Micro Attribution Overview 3Q154 LOS k & L
Equation 13 : Rv = = Active Return = Rportfolio –Rbenchmark = 展开如下
注: Wpi = proportions of the actual Portfolio invested in security i;
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45
Wbi = proportions of the Portfolio invested in security i;

Equation 14 : Equation 13 变形式 simplest form of micro performance attribution: a
security-by-security attribution analysis 3Q155
注：rB = return on the Porfolio’s benchmark 3Q155
用 Equation 14 做 micro 分析缺点: large number of securities in a well-diversified portfolio makes

the impact of any individual security uninteresting. 3Q155
6.6. Sector Weighting/Stock Selection Micro Attribution 3Q156 LOS k & l
Equation 15:
注：wpj = Portfolio weight of sector j；wBj = benchmark weight of sector j
rpj = Portfolio return of sector j；rBj = benchmark return of sector j
S = number of sectors 3Q157
Equation 16: Equation 15 变形式 3Q158 rB = returns on overall portfolio’s benchmark 3Q158
6.8. Fixed-Income Attribution 3Q161 LOS n & o

Ttl return of a fixed income portfolio’s attributions = external interest rate effect + active
management effect: 3Q165
7 Performance Apprasial （定性分析）3Q167
7.1. Risk-Adjusted Performance Appraisal Measures 3Q168 LOS p & q
1. Ex Post Alpha(也称 Jensen’s alpha): 基于 ex post Security Market Line横轴是β=COV
i,mkt ，纵轴是 expected return on asset i 3Q168
Equation 17:
Equation 18: equation 17 变形式,成为 linear

regression for a period of t, 3Q168
2. Treynor Measure: 也源自 ex post SML，是 SML 的 slope
Equation 19: 注：分子两个因子都是 average values over the evaluation
period. 分母是 expected value. 3Q169
小结： 1)ex post alpha 和 Treynor measure 有 same assessment 结论。
3Q169
2) only consider beta (market risks)
3. Sharp Ratio: 3Q169 Equation 20:
1) 基于 ex post CML (capital market line)  a skilful manager’s acct return 将高于
CML 2) portfolio standarddeviation include both beta & alpha(active management)
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4. M2 : 同 sharp ratio, 基于 ex post CML

Equation 21: M2 measures what the account would have returned if it had taken on the same
total risk as the market index. 3Q169
注：1）A skillful manager’s M2 value > market index return.
5. Information ratio: Equation 22: 3Q170

分母=active return = long position in the account is funded by a short position
in the benchmark. 3Q170
分子=active risk = standard deviation of difference between acct returns &
benchmark returns. 3Q170  所以只有 alpha related risk.
46

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Reading 5 the Behavioral Finance Perspective

Reading 10 Estate Planning in a Global Context

Equation 1： Future Value Interest Factor: FVIFi = [1 + r(1 – ti)]n

3.2 Blended Taxing Enviroment 3M239

r* = r(1 – piti – pdtd – prealized cgtrealized cg) 3M240

r=pre-tax overall return；r*=effective annual after-tax return

Effective deferred(unrealized) capital gains tax rate 如下: 3M241(组合最终变现时所被征收税

3.3 Accrual Equivalent Returns & Tax Rates 3M243

4. Types of Investment Accounts 3M24

Reading 10 Estate Planning in a Global Context

3. Core Capital & Excess Capital 3M278

The geometric average return is related to the arithmetic average return

4. Transfer Excess Capital 3M288

Te = estate tax if asset is bequeathed

4.1.2 Taxable Gifts 3M291 （Recipient 付 gift tax）

income tax benefit on a charitable transfer. Example 7 Charitable Gifts 3M299

6 Cross-Border Estate Planning 3M303

Reading 12 Risk Management for Individuals

4. Insurance & Annuities 3M405

Calculate Life Insurance Needs：投保额度 3M416

4.7 Annuities 3M422

5. Implementation of Risk Management for Individuals 3M431

Need-Analysis Method: 3M436-437

Reading 13 Managing Institutional Investors Portfolios

4. The Insurance Industry 3M499

5. Banks and Other Institutional Investors 3M519

1) Leverage-adjusted duration gap = DA – kDL, where DA is the duration of assets, DL is the

Reading 14 Capital Market Expectations

3.1.1.4 Multifactor Models: K factors drive asset returns 3N27

Ri = the return to asset I ; ai = an intercept term in the equation for asset i

Fk = the return to factor k, k = 1, 2, …, K

bik = the sensitivity of the return to asset i to the return to factor k, k = 1, 2, …, K

Mij = covariance of market I with market j.

3.1.2 Discounted Cash Flow Models 3N31 Equation 4

D/P = expected dividend yield

E(Ri)=RF+(Risk premium)1+(Risk premium)2+…+(Risk premium)K

E(Rb) = Real risk-free interest rate + Inflation premium + Default risk

premium + Illiquidity premium + Maturity premium + Tax premium

1）右式圆括号里的是 sharp ratio of the world market portfolio

3）Singer–Terhaar approach recognizes market imperfections(illiquidity & market segmentation)

小结：Singer-Terhaar approach 估算 expected return 3N43

4.6 Using Economic Information in Forecasting Asset Class Returns 3N89

Reading 15 Equity Market Valuation（中量习题 16 点）

Solow residual = TFP =

2.4 Equity Market Valuation 3N131 （LOS c-d）

其中 estimated intrinsic value 用 H model 测 V0 = P0 justified 指 warranted by fundamentals.

4. Relative Value Models 3N147

•US stocks are undervalued if Fed model ratio > 1

Yardeni Model 3N150:

4.2 Asset-Based Models 3N157

Equity q = a company’s equity market capitalization / net worth at replacement costs

Reading 17 Principles of Asset Allocation 3N235（无习题）

其中：Um 和 Rm 以百分比表达;如果是 decimals 表达法，则 0.005 换成 0.5 。3N238

2.6 Risk Budgeting 3N267

An asset allocation is optimal from a risk-budgeting perspective when【=(Expected return –

3 Develop Liability-relative Asset Allocations 3N273

3.2 Approaches to Liability-Relative Asset Allocation 3N276 (LOS k) 3 大法

4. Developing Goals-Based Asset Allocations 3N289:

5 Heuristics & Other Approaches to Asset Allocation 3N306 (LOS n)

wi = the weight of asset i

Study Session 9 Asset Allocation & Related Decisions in Portfolio Management(2)