# CFA III SS 10 Global Bonds and Fixed-Income Derivatives

 Duration of equity in leveraged portfolio Basically De = duration of equityDb = duration of borrowedDp = duration of portfolio Description; drawbacks of following bond measures of risk 1. variance/std dev2. semivariance3. shortfall risk4. value at risk1. dispersion around mean; returns are non-normal, requires n(n+1)/2 inputs, inputs constantly changing2. dispersion results below target return; same as above, and less accurate b/c uses half of the data3. probability that actual return is less than target return; provides probability only, not what level of losses could be below target4. estimated loss over specified time period at specified probability; does not quantify what happens to return at less than the specified probability - ex. 50% chance lose 5%, but may be a 30% chance lose 90% that is not communicated Compute number of futures contracts needed for desired portfolio duration Dt = target durationDp = current durationVp = value of portfolioDctd = duration of cheapest to deliverPctd = price of cheapest to deliverCF = ctd conversion factorYield Beta = ratio of yield changes for item being hedged and CTD; yield beta is 1 unless told otherwise Calculate duration of a swap Dasset - Dliab, so Dreceive - DpayDrec = reset period (in years) / 2; usually .5/2 = .25Dpay = .75*(swap length in years) Calculate the duration of an option Dopt = Delta of option * Duration underlying * (Price underlying/Price option) Three types of credit risk default riskdowngrade riskcredit spread risk 1. Credit option 2. Credit forward3. Credit swap1. option can be on spread or price2. forwards where payment depends on credit spread at maturity3. CDS - pay premium and receive in event of default change in foreign bond value in a domestic portfolio duration * Byield * change in domestic yield * 100Yield beta = regression of foreign yield on domestic yield (beta term) interest rate parity F [d/f] = S [d/f] * (1+rd/1+rf) AuthorblackarbsCEO ID316477 Card SetCFA III SS 10 Global Bonds and Fixed-Income Derivatives DescriptionCFA Updated2016-02-25T02:07:29Z Show Answers