fbpixel 101 concepts level I | IFT World - Part 10
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LM01 Alternative Investment Features, Methods, and Structures.
LM01 Categories, Characteristics, and Compensation Structures of Alternative Investments
LM01 Corporate Structures and Ownership
LM01 Derivative Instrument and Derivative Market Features
LM01 Derivative Instrument and Derivative Market Features.
LM01 Ethics and Trust in the Investment Profession
LM01 Ethics and Trust in the Investment Profession.
LM01 Fixed-Income Instrument Features.
LM01 Fixed-Income Securities: Defining Elements
LM01 Introduction to Financial Statement Analysis
LM01 Introduction to Financial Statement Analysis.
LM01 Market Organization & Structure.
LM01 Market Organization and Structure
LM01 Organizational Forms, Corporate Issuer Features, and Ownership.
LM01 Portfolio Management Overview
LM01 Portfolio Management: An Overview.
LM01 Rates and Returns.
LM01 The Firm & Market Structures.
LM01 Time Value of Money
LM01 Topics in Demand and Supply Analysis
LM02 Alternative Investment Performance and Returns.
LM02 Analyzing Income Statements.
LM02 Code of Ethics and Standards of Professional Conduct Profession
LM02 Code of Ethics and Standards of Professional Conduct.
LM02 Financial Reporting Standards
LM02 Fixed Income Markets - Issuance Trading and Funding
LM02 Fixed-Income Cash Flows and Types.
LM02 Forward Commitment and Contingent Claim Features and Instruments
LM02 Forward Commitment and Contingent Claim Features and Instruments.
LM02 Introduction to Corporate Governance and Other ESG Considerations
LM02 Investors and Other Stakeholders.
LM02 Organizing, Visualizing, and Describing Data
LM02 Performance Calculation and Appraisal of Alternative Investments
LM02 Portfolio Risk & Return: Part I.
LM02 Portfolio Risk and Return Part I
LM02 Security Market Indexes
LM02 Security Market Indexes.
LM02 The Firm and Market Structures
LM02 Time Value of Money in Finance.
LM02 Understanding Business Cycles.
LM03 Aggregate Output, Prices and Economic Growth
LM03 Analyzing Balance Sheets.
LM03 Business Models & Risks
LM03 Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits.
LM03 Derivative Benefits, Risks, and Issuer and Investor Uses
LM03 Derivative Benefits, Risks, and Issuer and Investor Uses.
LM03 Fiscal Policy.
LM03 Fixed-Income Issuance and Trading.
LM03 Guidance for Standards I-VII
LM03 Guidance for Standards I–VII.
LM03 Introduction to Fixed Income Valuation
LM03 Investments in Private Capital: Equity and Debt.
LM03 Market Efficiency
LM03 Market Efficiency.
LM03 Portfolio Risk & Return: Part II.
LM03 Portfolio Risk and Return Part II
LM03 Private Capital, Real Estate, Infrastructure, Natural Resources, and Hedge Funds
LM03 Probability Concepts
LM03 Statistical Measures of Asset Returns.
LM03 Understanding Income Statements
LM04 An Introduction to Asset-Backed Securities
LM04 Analyzing Statements of Cash Flows I.
LM04 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives
LM04 Arbitrage, Replication, and the Cost of Carry in Pricing Derivatives.
LM04 Basics of Portfolio Planning & Construction
LM04 Basics of Portfolio Planning and Construction.
LM04 Capital Investments
LM04 Common Probability Distributions
LM04 Fixed-Income Markets for Corporate Issuers.
LM04 Introduction to the Global Investment Performance Standards (GIPS)
LM04 Introduction to the Global Investment Performance Standards (GIPS).
LM04 Monetary Policy.
LM04 Overview of Equity Securities
LM04 Overview of Equity Securities.
LM04 Probability Trees and Conditional Expectations.
LM04 Real Estate and Infrastructure.
LM04 Understanding Balance Sheets
LM04 Understanding Business Cycles
LM04 Working Capital and Liquidity.
LM05 Analyzing Statements of Cash Flows II.
LM05 Capital Investments and Capital Allocation.
LM05 Company Analysis: Past and Present.
LM05 Fixed-Income Markets for Government Issuers.
LM05 Introduction to Geopolitics.
LM05 Introduction to Industry and Company Analysis
LM05 Monetary and Fiscal Policy
LM05 Natural Resources.
LM05 Portfolio Mathematics.
LM05 Pricing and Valuation of Forward Contracts and for an Underlying with Varying Maturities
LM05 Pricing and Valuation of Forward Contracts.
LM05 Sampling and Estimation
LM05 The Behavioral Biases of Individuals
LM05 The Behavioral Biases of Individuals.
LM05 Understanding Cash Flow Statements
LM05 Understanding Fixed-Income Risk and Return
LM05 Working Capital & Liquidity
LM06 Analysis of Inventories.
LM06 Capital Structure.
LM06 Cost of Capital-Foundational Topics
LM06 Equity Valuation: Concepts and Basic Tools
LM06 Financial Analysis Techniques
LM06 Fixed-Income Bond Valuation: Prices and Yields.
LM06 Fundamentals of Credit Analysis
LM06 Hedge Funds.
LM06 Hypothesis Testing
LM06 Industry and Competitive Analysis.
LM06 International Trade.
LM06 Introduction to Geopolitics
LM06 Introduction to Risk Management
LM06 Introduction to Risk Management.
LM06 Pricing and Valuation of Futures Contracts
LM06 Pricing and Valuation of Futures Contracts.
LM06 Simulation Methods.
LM07 Analysis of Long-Term Assets.
LM07 Business Models.
LM07 Capital Flows and the FX Market.
LM07 Capital Structure
LM07 Company Analysis: Forecasting.
LM07 Estimation and Inference.
LM07 International Trade and Capital Flows
LM07 Introduction to Digital Assets.
LM07 Introduction to Linear Regression
LM07 Inventories
LM07 Pricing and Valuation of Interest Rate and Other Swaps.
LM07 Pricing and Valuation of Interest Rates and Other Swaps
LM07 Technical Analysis
LM07 Yield and Yield Spread Measures for Fixed-Rate Bonds.
LM08 Currency Exchange Rates
LM08 Equity Valuation: Concepts and Basic Tools.
LM08 Exchange Rate Calculations.
LM08 Fintech in Investment Management
LM08 Hypothesis Testing.
LM08 Long Lived Assets
LM08 Measures of Leverage
LM08 Pricing and Valuation of Options
LM08 Pricing and Valuation of Options.
LM08 Topics in Long-Term Liabilities and Equity.
LM08 Yield and Yield Spread Measures for Floating-Rate Instruments.
LM09 Analysis of Income Taxes.
LM09 Income Taxes
LM09 Option Replication Using Put-Call Parity
LM09 Option Replication Using Put–Call Parity.
LM09 Parametric and Non-Parametric Tests of Independence.
LM09 The Term Structure of Interest Rates: Spot, Par, and Forward Curves.
LM10 Financial Reporting Quality.
LM10 Interest Rate Risk and Return.
LM10 Non-current (Long-Term) Liabilities
LM10 Simple Linear Regression.
LM10 Valuing a Derivative Using a One-Period Binomial Model
LM10 Valuing a Derivative Using a One-Period Binomial Model.
LM11 Financial Analysis Techniques.
LM11 Financial Reporting Quality
LM11 Introduction to Big Data Techniques.
LM11 Yield-Based Bond Duration Measures and Properties.
LM12 Applications of Financial Statement Analysis
LM12 Introduction to Financial Statement Modeling.
LM12 Yield-Based Bond Convexity and Portfolio Properties.
LM13 Curve-Based and Empirical Fixed-Income Risk Measures.
LM14 Credit Risk.
LM15 Credit Analysis for Government Issuers.
LM16 Credit Analysis for Corporate Issuers.
LM17 Fixed-Income Securitization.
LM18 Asset-Backed Security (ABS) Instrument and Market Features.
LM19 Mortgage-Backed Security (MBS) Instrument and Market Features.
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Category: 101 Concepts for Level I

Concept 90: Use of Arbitrage, Replication, and Risk Neutrality in Pricing Derivatives

Arbitrage is the condition under which two equivalent assets or derivatives or combination of assets and derivatives sell for different prices. This allows an arbitrageur to buy at a low price and sell at a high price, and earn a risk-free profit from this transaction without committing any capital. In well-functioning markets, arbitrage opportunities are quickly exploited. The combined actions of arbitrageurs force the prices of similar securities to converge. Hence, arbitrage leads to the law of one price: securities or derivatives that produce equivalent results must sell for equivalent prices. Replication is the creation of an asset or a… Read More

101 concepts level I

Concept 91: Difference in Forward and Futures Prices

Futures prices can differ from forward prices because of the effect of interest rates on the interim cash flows from the daily settlement. If interest rates are constant, or have zero correlation with futures prices, then forwards and futures prices will be the same. If futures prices are negatively correlated with interest rates, then it is more desirable to buy forwards than futures. If future prices are positively correlated with interest rates, then it is more desirable to buy futures than forwards. If immediate exercise would result in loss, then the option is out of the money. If immediate exercise… Read More

101 concepts level I

Concept 92: Exercise Value, Time Value, and Moneyness of an Option

Moneyness refers to whether an option is in the money or out of the money. If immediate exercise of the option would result in positive payoff, then option is in the money. If immediate exercise would result in loss, then the option is out of the money. If immediate exercise would result in neither a gain nor a loss, then the option is at the money.   Call Option Put Option In-the-money S > X S < X At-the-money S = X S = X Out-of-the-money S < X S > X Exercise value of an option is the maximum… Read More

101 concepts level I

Concept 93: Factors that Determine the Value of an Option

Increase in Value of call option will Value of put option will value of the underlying Increase Decrease exercise price Decrease Increase risk-free rate Increase Decrease time to expiration Increase Increase (exception: a few European puts) volatility of the underlying Increase Increase costs incurred while holding the underlying Increase Decrease benefits received while holding the underlying Decrease Increase

101 concepts level I

Concept 94: Put–Call Parity for European Options

European put and call prices are related through put–call parity, which specifies that the put price plus the price of the underlying equals the call price plus the present value of the exercise price. According to put-call parity, Fiduciary call = Protective put Assume call and put options with an exercise price of $100 in which the underlying is at $90 at time t=0. The risk free rate is 10% and the options expire in 3 months. The call price is $2. Calculate the put price. Solution:  

101 concepts level I

Concept 95: Alternative Investments v/s Traditional Investments

Traditional investments include long-only position in stocks, bonds and cash. All other investments are classified as alternative investments. Alternative investments include investments in: real estate commodities private equity hedge funds Compared to traditional investments, alternative investments typically have: lower liquidity. less regulation. lower transparency. higher fees. limited and potentially biased historical risk and return data. unique legal and tax considerations.

101 concepts level I

Concept 96: Types of Alternative Investments

Hedge funds Uses a partnership structure with a general partner who manages the fund and accepts unlimited liability and limited partners (investors) who own fractional interests in the partnership and have limited liability. The general partner typically receives a management fee based on assets under management and an incentive fee based on the performance of the fund. Hedge funds are typically classified by strategy into four broad categories: Event-driven: Includes merger arbitrage, distressed/restructuring, activist shareholder and special situation. Relative value: Strategies that seek to profit from pricing discrepancies. Macro: Strategies based on top-down analysis of global economic trends. Equity hedge:… Read More

101 concepts level I

Concept 97: Hedge Fund Fees

The total fee for a hedge fund consists of a management fee and an incentive fee. Common fee structure is 2 and 20 which means 2% management fee and 20% incentive fee. Funds of funds charge an additional 1 and 10 fee (1% management fee and 10% incentive fee). Incentive fee is usually calculated on profits net of management fees or on profits before management fee. Sometimes, the incentive fee is paid only if the returns exceed a hurdle rate. In some cases the incentive fee is paid only if the fund has crossed the high watermark. High watermark is… Read More

101 concepts level I

Concept 98: Framework for Ethical Decision Making

A framework for ethical decision making can help people look at and assess a decision from different perspectives. This enables them to make good decisions, and to limit unplanned consequences. A general ethical decision making framework has the following four steps: Identify: Relevant facts, stakeholders and duties owed, ethical principles, conflicts of interest. Consider: Situational influences, additional guidance, alternative actions. Decide and act. Reflect: Was the outcome as anticipated? Why or why not?

101 concepts level I

Concept 99: Ethical Responsibilities Required by the Code and Standards

I. Professionalism A. Knowledge of the law Understand and comply with all applicable laws, rules and regulation. In a case of a conflict, comply with the stricter law. Do not knowingly participate in any violation. Disassociate from such activity. B. Independence and objectivity Use reasonable care and judgment. Maintain independence and objectivity. Do not offer, solicit or accept gifts; however, small token gifts are ok. C. Misrepresentation Do not guarantee investment performance. Avoid plagiarism (the practice of taking someone else’s work or ideas and passing them off as one’s own). Do not omit important facts. D. Misconduct Do not lie,… Read More

101 concepts level I
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