CFA Exam Pattern - Updates

If you plan to appear for the CFA exam June 6, 2010, here are some important things you must know as you chalk out your plan, gather study resources and get on with it:
(a) The curriculum for CFA exam has changed
(b) CFAI has introduced some modification regarding the Exam style and formatting convention
(c) Accounting rules and the financial environment have changed and
(d) CFA-2009 exam onwards, the MCQs will have three answer choices instead of four
The curriculum changes each year to meet the dynamic nature and complexity of the global investment profession. CFA Institute, through the oversight of the Educational Advisory Committee (EAC),
regularly conducts a practice analysis survey of investment professionals around the world to determine the knowledge, skills, and competencies that are relevant to the profession. The results of the practice analysis define the Global Body of Investment Knowledge (GBIK) and the CFA Program Candidate Body of Knowledge
(CBOK).
The last change with respect to number answer choices could have significant impact on the way the candidates attempt and score in the exam. Here’s CFA Institute’s rationale behind this change:

“Research and our own experience indicate that the fourth answer option on multiple choice and item set exams is unnecessary to assess a candidate’s knowledge and skills. Three answer choices are sufficient and effective in discriminating between those candidates that possess the knowledge and skills and those that do not. As a result, we are changing the format of the multiple-choice and item set questions on CFA exams from four answer options to three.”
So, would it become easier to crack the exam, now that the candidates have fewer answer choices to consider?
Well, not really. The key thing to note here is that although candidates need to carefully manage their time to perform well on CFA exams, the CFA exams are not merely a test of time management skills. You need to have a certain level of mastery of the knowledge and skills to get through.
The probability of successful guessing on any single MCQ will increase. However, the probability that a candidate would be able to guess correctly enough times to pass the exam is very small. This is true irrespective of whether there are two, three, four or more choices. It is also at least theoretically possible that a candidate
with enough knowledge and skills to achieve a reasonably high score might achieve a higher score through successful guessing on just a few questions. It is important to note that there is not a fixed score that candidates need to achieve to pass a CFA exam. Standard setters evaluate the difficulty of each exam in making their minimum
pass score recommendation. Keep this in mind as you gear up the preparation for the exam and remember - “Work Hard At Working Smart”.
CFAIA
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FRM Coaching Delhi

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More than 250,000 Man hours of Quality Training
* One stop for Financial Trainings View Details
* Innovative Content Visualize FRM Diagnostic FRM
* Question Solving Sessions View Details
* Topic Expert Model Learn from the
* Masters of the Trade View Detail
* It is no wonder that 53% of our new students come from recommendation of old students

• See more related articles and free preparation stuff at: The Finance Blog - CFA PRM FRM Certifications

List of FRM Core Readings

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* One stop for Financial Trainings View Details
* Innovative Content Visualize FRM Diagnostic FRM
* Question Solving Sessions View Details
* Topic Expert Model Learn from the
* Masters of the Trade View Detail
* It is no wonder that 53%  of our new students come  from recommendation of old  students


FRM Part I
Foundations of Risk Management
René Stulz, “Risk Management Failures: What are They and When Do They Happen?” Fisher College of Business Working Paper Series (Oct. 2008). Fisher College of Business Working Paper No. 2008-03-017.
GARP Code of Conduct
Valuation and Risk Models
“Principles for Sound Stress Testing Practices and Supervision” (Basel Committee on Banking Supervision Publication, May 2009)
FRM Part II
Credit Risk Measurement and Management
Adam Ashcroft and Til Schuermann, “Understanding the Securitization of Subprime Mortgage Credit” , Federal Reserve Bank of New York Staff Reports, no. 318 (March 2008).
Eduardo Canabarro and Darrell Duffie, “Measuring and Marking Counterparty Risk” in ALM of Financial Institutions, ed. Leo Tilman (London: Euromoney Institutional Investor, 2003).

Darrell Duffie, “Innovations in Credit Risk Transfer: Implications for Financial Stability” (July 2008) .
Studies on credit risk concentration: an overview of the issues and a synopsis of the results from the Research Task Force project” (Basel Committee on Banking Supervision Publication, November 2006).
Operational and Integrated Risk Management
Andrew Kuritzkes, Til Schuermann and Scott M. Weiner. “Risk Measurement, Risk Management and Capital Adequacy in Financial Conglomerates” , in Brookings-Wharton Papers on Financial Services Robert E. Litan and Richard Herring (eds) (Brookings Institutional Press, Washington, DC: 2003).
Brian Nocco and René Stulz, “Enterprise Risk Management: Theory and Practice” , Journal of Applied Corporate Finance 18, No. 4 (2006): 8-20.
Falko Aue and Michael Kalkbrener, “LDA at Work” Deutsche Bank White Paper, 2007.
Til Schuermann and Andrew Kuritzkes, “What We Know, Don’t Know and Can’t Know About Bank Risk: A View from the Trenches” , (March 2008).
“Principles for Sound Liquidity Risk Management and Supervision” (Basel Committee on Banking Supervision Publication, September 2008).
“Range of practices and issues in economic capital modeling” (Basel Committee on Banking Supervision Publication, March 2009)
Readings for Basel Reference
“Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework-Comprehensive Version” (Basel Committee on Banking Supervision Publication, June 2006).
“Supervisory guidance for assessing banks’ financial instrument fair value practices” (Basel Committee on Banking Supervision Publication, April 2009).
“Guidelines for computing capital for incremental risk in the trading book -final version” (Basel Committee on Banking Supervision Publication, July 2009).
“Revisions to the Basel II market risk framework -final version” (Basel Committee on Banking Supervision Publication, July 2009).
Risk Management and Investment Management
René Stulz, “Hedge Funds: Past, Present and Future.” Fisher College of Business Working Paper No. 2007-03-003; Charles A Dice Center WP No. 2007-3.
Manmohan Singh and James Aitken, “Deleveraging after Lehman — Evidence from Reduced Rehypothecation” , (March 2009).
Stephen Dimmock and William Gerken, “Finding Bernie Madoff: Detecting Fraud by Investment Managers” , (December 2009).
Current Issues in Financial Markets
Gary Gorton, “The Panic of 2007″ , (August 2008).
Raghuram Rajan, “Has Financial Development Made The World Riskier?” (September 2005).
Senior Supervisory Group, “Observations on Risk Management Practices during the Recent Market Turbulence,” (March 2008).
UBS, “Shareholder Report on UBS?s Write-Downs” , (April 2008).
Martin Hellwig, “Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis” , (November 2008). MPI Collective Goods Preprint, No. 2008/43.
Carmen Reinhart and Kenneth Rogoff, “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises” , (April 2008).
Darrell Duffie, “The Failure Mechanics of Dealer Banks” , (June 2009).

Pristine Careers
More than 250,000 Man hours of Quality Training
* One stop for Financial Trainings View Details
* Innovative Content Visualize FRM Diagnostic FRM
* Question Solving Sessions View Details
* Topic Expert Model Learn from the
* Masters of the Trade View Detail
* It is no wonder that 53%  of our new students come  from recommendation of old  students

List of FRM Core Readings

Pristine Careers
More than 250,000 Man hours of Quality Training
* One stop for Financial Trainings View Details
* Innovative Content Visualize FRM Diagnostic FRM
* Question Solving Sessions View Details
* Topic Expert Model Learn from the
* Masters of the Trade View Detail
* It is no wonder that 53% of our new students come from recommendation of old students


FRM Part I
Foundations of Risk Management
René Stulz, “Risk Management Failures: What are They and When Do They Happen?” Fisher College of Business Working Paper Series (Oct. 2008). Fisher College of Business Working Paper No. 2008-03-017.
GARP Code of Conduct
Valuation and Risk Models
“Principles for Sound Stress Testing Practices and Supervision” (Basel Committee on Banking Supervision Publication, May 2009)
FRM Part II
Credit Risk Measurement and Management
Adam Ashcroft and Til Schuermann, “Understanding the Securitization of Subprime Mortgage Credit” , Federal Reserve Bank of New York Staff Reports, no. 318 (March 2008).
Eduardo Canabarro and Darrell Duffie, “Measuring and Marking Counterparty Risk” in ALM of Financial Institutions, ed. Leo Tilman (London: Euromoney Institutional Investor, 2003).

Darrell Duffie, “Innovations in Credit Risk Transfer: Implications for Financial Stability” (July 2008) .
Studies on credit risk concentration: an overview of the issues and a synopsis of the results from the Research Task Force project” (Basel Committee on Banking Supervision Publication, November 2006).
Operational and Integrated Risk Management
Andrew Kuritzkes, Til Schuermann and Scott M. Weiner. “Risk Measurement, Risk Management and Capital Adequacy in Financial Conglomerates” , in Brookings-Wharton Papers on Financial Services Robert E. Litan and Richard Herring (eds) (Brookings Institutional Press, Washington, DC: 2003).
Brian Nocco and René Stulz, “Enterprise Risk Management: Theory and Practice” , Journal of Applied Corporate Finance 18, No. 4 (2006): 8-20.
Falko Aue and Michael Kalkbrener, “LDA at Work” Deutsche Bank White Paper, 2007.
Til Schuermann and Andrew Kuritzkes, “What We Know, Don’t Know and Can’t Know About Bank Risk: A View from the Trenches” , (March 2008).
“Principles for Sound Liquidity Risk Management and Supervision” (Basel Committee on Banking Supervision Publication, September 2008).
“Range of practices and issues in economic capital modeling” (Basel Committee on Banking Supervision Publication, March 2009)
Readings for Basel Reference
“Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework-Comprehensive Version” (Basel Committee on Banking Supervision Publication, June 2006).
“Supervisory guidance for assessing banks’ financial instrument fair value practices” (Basel Committee on Banking Supervision Publication, April 2009).
“Guidelines for computing capital for incremental risk in the trading book -final version” (Basel Committee on Banking Supervision Publication, July 2009).
“Revisions to the Basel II market risk framework -final version” (Basel Committee on Banking Supervision Publication, July 2009).
Risk Management and Investment Management
René Stulz, “Hedge Funds: Past, Present and Future.” Fisher College of Business Working Paper No. 2007-03-003; Charles A Dice Center WP No. 2007-3.
Manmohan Singh and James Aitken, “Deleveraging after Lehman — Evidence from Reduced Rehypothecation” , (March 2009).
Stephen Dimmock and William Gerken, “Finding Bernie Madoff: Detecting Fraud by Investment Managers” , (December 2009).
Current Issues in Financial Markets
Gary Gorton, “The Panic of 2007″ , (August 2008).
Raghuram Rajan, “Has Financial Development Made The World Riskier?” (September 2005).
Senior Supervisory Group, “Observations on Risk Management Practices during the Recent Market Turbulence,” (March 2008).
UBS, “Shareholder Report on UBS?s Write-Downs” , (April 2008).
Martin Hellwig, “Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis” , (November 2008). MPI Collective Goods Preprint, No. 2008/43.
Carmen Reinhart and Kenneth Rogoff, “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises” , (April 2008).
Darrell Duffie, “The Failure Mechanics of Dealer Banks” , (June 2009).

Pristine Careers
More than 250,000 Man hours of Quality Training
* One stop for Financial Trainings View Details
* Innovative Content Visualize FRM Diagnostic FRM
* Question Solving Sessions View Details
* Topic Expert Model Learn from the
* Masters of the Trade View Detail
* It is no wonder that 53% of our new students come from recommendation of old students

• See more related articles and free preparation stuff at: The Finance Blog - CFA PRM FRM Certifications

PRM^® Exam Trainings

Pristine Careers - Official PRM Course Provider in India

Pristine Careers is the leader in Risk Management Training and is the only provider of training for PRM in India, which is one of the most prestigious Risk Management Certifications in the world. To view more details on Official Course Providers, click here...

Click to Download PRM Training Brochure

PRM Preparation Support From Pristine Careers

• Can reduce your exam preparation time from 300 hrs to 150hrs.
• 14 days of Classroom Trainings for all the subjects
• 30 hrs of Online Tests ( topic wise)- 1000 + questions
• Free online classes for students who register for classroom trainings
• Free online Videos on difficult Topics, Solved Examples & Practice Exercises
• FRM Certified Faculty from IIT/IIM's with relevant experience

Pristine PRM 120 Hrs Classroom Training

• Can reduce your exam preparation time from 300 hrs to 150 hrs.
• 14 days of Classroom Trainings for all the subjects
• 30 hrs of Online Tests ( topic wise)- 1000 + questions
• Free online classes for students who register for classroom trainings
• Free online Videos on difficult Topics, Solved Examples & Practice Exercises
• FRM Certified Faculty from IIT/IIM's with relevant experience
• Training timings: Saturday 2pm to 7.30pm ; Sunday 10am to 3.30pm
• Fees: Fees Rs 14,950 or USD 495(Including Taxes)

Pristine PRM Comprehensive Web Tutorials

• For Students who want to prepare on their own
• A Comprehensive Study Material including Presentations (for all subjects)
• Topic-wise & Subject wise Online Tests ( 1000+ questions) and 2 Mock tests for each subject.
• Complete guidance on "How to prepare for the Exam"
• Fees: Rs. 5000 or USD 150 (Including Taxes), can be adjusted for PRM Classroom Trainings

* 20% discount for a group of 5 or more students

Pristine PRM Online Tests & Mock Tests

• For Students who require only Question papers
• Topic-wise & Subject wise Online Tests ( 1000+ questions) and 2 Mock tests for each subject.
• Fees: Rs 2,500 or USD 75 (Including Taxes), can be adjusted for PRM Classroom Trainings

* 20% discount for a group of 5 or more students

Unique benefits of the preparation support

PRM^® Exam Trainings

Pristine Careers - Official PRM Course Provider in India

Pristine Careers is the leader in Risk Management Training and is the only provider of training for PRM in India, which is one of the most prestigious Risk Management Certifications in the world. To view more details on Official Course Providers, click here...

Click to Download PRM Training Brochure

PRM Preparation Support From Pristine Careers

• Can reduce your exam preparation time from 300 hrs to 150hrs.
• 14 days of Classroom Trainings for all the subjects
• 30 hrs of Online Tests ( topic wise)- 1000 + questions
• Free online classes for students who register for classroom trainings
• Free online Videos on difficult Topics, Solved Examples & Practice Exercises
• FRM Certified Faculty from IIT/IIM's with relevant experience

Pristine PRM 120 Hrs Classroom Training

• Can reduce your exam preparation time from 300 hrs to 150 hrs.
• 14 days of Classroom Trainings for all the subjects
• 30 hrs of Online Tests ( topic wise)- 1000 + questions
• Free online classes for students who register for classroom trainings
• Free online Videos on difficult Topics, Solved Examples & Practice Exercises
• FRM Certified Faculty from IIT/IIM's with relevant experience
• Training timings: Saturday 2pm to 7.30pm ; Sunday 10am to 3.30pm
• Fees: Fees Rs 14,950 or USD 495(Including Taxes)

Pristine PRM Comprehensive Web Tutorials

• For Students who want to prepare on their own
• A Comprehensive Study Material including Presentations (for all subjects)
• Topic-wise & Subject wise Online Tests ( 1000+ questions) and 2 Mock tests for each subject.
• Complete guidance on "How to prepare for the Exam"
• Fees: Rs. 5000 or USD 150 (Including Taxes), can be adjusted for PRM Classroom Trainings

* 20% discount for a group of 5 or more students

Pristine PRM Online Tests & Mock Tests

• For Students who require only Question papers
• Topic-wise & Subject wise Online Tests ( 1000+ questions) and 2 Mock tests for each subject.
• Fees: Rs 2,500 or USD 75 (Including Taxes), can be adjusted for PRM Classroom Trainings

* 20% discount for a group of 5 or more students

Unique benefits of the preparation support

Options Trading Strategies

The simmering Sino-US relationships, paroxysms in European bond market and the domestic budget of this fiscal around the corner are the contributors of high volatility in NIFTY.

The latest fuel to burn the superficial bonhomie between the two super powers is the America’s decision to sell Taiwan $6 billion-worth of weaponry. This is playing an active role in bringing the confidence indexes to their all time lows.

Late last month the yield on 10-year government bonds issued by Greece vaulted to 7.1%, which is the highest since the country became EU member. This yield is 400bps more than that on German bunds, which are considered to be the safest investment in EU. The panic abated on 3-Feb, when the European Commission endorsed the Greek government’s plan to cut the deficit to 3% of GDP by 2012. The storm in Greece has compelled many sleepers like Portugal and Spain to wake-up and start preparing for the similar crises in domestic bonds.

Latest updates from Central Statistical Organization (CSO) has although updated the growth estimate to 7.2%, many are skeptical about the numbers because of the negative growth in the agriculture, thanks to the monsoon this year.

Traders of imminent I-banks have started getting the margin calls in their vanilla strategies. ABC Bank didn’t have any prior experience and exposure to the options. They want to enter in options trading and want to profit from the present condition of the Indian market.

All the six traders of the ABC Bank have different opinions on the importance and the outcome of the scenario. Depending on the view of the traders, we have to advice the best strategy for the novice traders of the ABC bank.

Case I:

Trader1: I think despite the bad numbers in agriculture by CSO, the good part is that overall Indian economy will grow at much higher rate (7.2%) than previously expected. I think the budget should be investor-friendly. If I talk about Sino-US relationships, it’s not breaking news. It had been going since 4^th Nov, ’09 the day Obama entered white-house.

You: Tell us something about EU bond market and your overall view in Indian context.

Trader1: According to me, EU bond market squall can be another crisis in the offing if not nipped in a week or so. This may affect Indian stock and bond market. Overall I would say I am conservatively bullish and conservatively bearish, but Congress’ investor-friendly budget as expected would lead the show.

You: From your feedback, the best strategy for you would be buy a call option, but as you are bearish because of EU bonds, I would suggest selling a call option at higher strike price. This strategy is also called Bull Spread.

Case II:

Trader2: My expectations are exactly opposite to what Trader1 thinks on the importance of the events.

You: This means that you think the probability of the EU bonds affecting Indian markets would be more than the impact of budget. For this outlook best suited strategy would be to sell call option at lower strike price and to buy a call option. Bear Spread

Case III:

Trader3: I am interested in short term options and for that period only possible outcome is the budget, which has equal chances of being a good or bad news for Indian investors. No matter what the outcome of the budget is going to be, Nifty has got to run. China-US relations and EU bonds are not sufficient factors to move Nifty.

You: Buy a call and buy a put at same strike price. Straddle

Case IV:

Trader4: My expectations are same as Trader3, but I don’t want to spend too much money upfront. Moreover the range boundaries which Nifty is going to break are higher than those expected by Trader3.

You: Buy call and put of different strike prices depending on your range boundaries. Strangle

Case V:

Trader5: I am interested in short term options and for that period only possible outcome is the budget, which has more chances of being good news for Indian investors. No matter what the outcome of the budget is going to be, Nifty has got to run. China-US relations and EU bonds are not sufficient factors to move Nifty. Overall Nifty is going to break the range boundary. There are 90% chances that the broken boundary is going to be the upper one.

You: If you are so much confident about the broken boundary to be the upper boundary, go for Strap strategy. Strap involves buying 2 call options and 1 put option at same strike price.

Case VI:

Trader6: Every year we get a new budget, few years back there were tensions between Middle East and US, now it’s between China and US, few months ago Dubai-world made a new about sovereign debt default, now it’s Greece or any country for that matter. All these so called big news are not going to be very significant unless our market obeys strong market efficient hypothesis. There’s so much of the positive and negative information that it cancels out in the end, only thing that remains is the irrationality and the psychology of the investor. So I think Nifty is going to trade between a range unlike a biotech company about to launch a new drug. So my expectations are that the market would be range bound and don’t want to spend too much upfront.

You: Buy two calls at different strike prices and sell two calls at intermediate strike prices. Butterfly spread.

Download the the excel file:

Related posts:

1. What are Exotic Options / Vanilla Options ? (20.719) What are Exotic Options/ Vanilla Options ?...
2. Effective Asset allocation Techniques (5.946) Effective Asset allocation Techniques...

Options Trading Strategies

The simmering Sino-US relationships, paroxysms in European bond market and the domestic budget of this fiscal around the corner are the contributors of high volatility in NIFTY.

The latest fuel to burn the superficial bonhomie between the two super powers is the America’s decision to sell Taiwan $6 billion-worth of weaponry. This is playing an active role in bringing the confidence indexes to their all time lows.

Late last month the yield on 10-year government bonds issued by Greece vaulted to 7.1%, which is the highest since the country became EU member. This yield is 400bps more than that on German bunds, which are considered to be the safest investment in EU. The panic abated on 3-Feb, when the European Commission endorsed the Greek government’s plan to cut the deficit to 3% of GDP by 2012. The storm in Greece has compelled many sleepers like Portugal and Spain to wake-up and start preparing for the similar crises in domestic bonds.

Latest updates from Central Statistical Organization (CSO) has although updated the growth estimate to 7.2%, many are skeptical about the numbers because of the negative growth in the agriculture, thanks to the monsoon this year.

Traders of imminent I-banks have started getting the margin calls in their vanilla strategies. ABC Bank didn’t have any prior experience and exposure to the options. They want to enter in options trading and want to profit from the present condition of the Indian market.

All the six traders of the ABC Bank have different opinions on the importance and the outcome of the scenario. Depending on the view of the traders, we have to advice the best strategy for the novice traders of the ABC bank.

Case I:

Trader1: I think despite the bad numbers in agriculture by CSO, the good part is that overall Indian economy will grow at much higher rate (7.2%) than previously expected. I think the budget should be investor-friendly. If I talk about Sino-US relationships, it’s not breaking news. It had been going since 4^th Nov, ’09 the day Obama entered white-house.

You: Tell us something about EU bond market and your overall view in Indian context.

Trader1: According to me, EU bond market squall can be another crisis in the offing if not nipped in a week or so. This may affect Indian stock and bond market. Overall I would say I am conservatively bullish and conservatively bearish, but Congress’ investor-friendly budget as expected would lead the show.

You: From your feedback, the best strategy for you would be buy a call option, but as you are bearish because of EU bonds, I would suggest selling a call option at higher strike price. This strategy is also called Bull Spread.

Case II:

Trader2: My expectations are exactly opposite to what Trader1 thinks on the importance of the events.

You: This means that you think the probability of the EU bonds affecting Indian markets would be more than the impact of budget. For this outlook best suited strategy would be to sell call option at lower strike price and to buy a call option. Bear Spread

Case III:

Trader3: I am interested in short term options and for that period only possible outcome is the budget, which has equal chances of being a good or bad news for Indian investors. No matter what the outcome of the budget is going to be, Nifty has got to run. China-US relations and EU bonds are not sufficient factors to move Nifty.

You: Buy a call and buy a put at same strike price. Straddle

Case IV:

Trader4: My expectations are same as Trader3, but I don’t want to spend too much money upfront. Moreover the range boundaries which Nifty is going to break are higher than those expected by Trader3.

You: Buy call and put of different strike prices depending on your range boundaries. Strangle

Case V:

Trader5: I am interested in short term options and for that period only possible outcome is the budget, which has more chances of being good news for Indian investors. No matter what the outcome of the budget is going to be, Nifty has got to run. China-US relations and EU bonds are not sufficient factors to move Nifty. Overall Nifty is going to break the range boundary. There are 90% chances that the broken boundary is going to be the upper one.

You: If you are so much confident about the broken boundary to be the upper boundary, go for Strap strategy. Strap involves buying 2 call options and 1 put option at same strike price.

Case VI:

Trader6: Every year we get a new budget, few years back there were tensions between Middle East and US, now it’s between China and US, few months ago Dubai-world made a new about sovereign debt default, now it’s Greece or any country for that matter. All these so called big news are not going to be very significant unless our market obeys strong market efficient hypothesis. There’s so much of the positive and negative information that it cancels out in the end, only thing that remains is the irrationality and the psychology of the investor. So I think Nifty is going to trade between a range unlike a biotech company about to launch a new drug. So my expectations are that the market would be range bound and don’t want to spend too much upfront.

You: Buy two calls at different strike prices and sell two calls at intermediate strike prices. Butterfly spread.

Download the the excel file:

Related posts:

1. What are Exotic Options / Vanilla Options ? (20.719) What are Exotic Options/ Vanilla Options ?...
2. Effective Asset allocation Techniques (5.946) Effective Asset allocation Techniques...

• See more related articles and free preparation stuff at: The Finance Blog - CFA PRM FRM Certifications

Effective Asset allocation Techniques

 

Asset allocation is the strategy used in choosing between the various kinds of possible investments, in other words,
the strategy used in choosing in what asset classes such as stocks and bonds one wants to invest.
A large part of financial planning consists of finding an asset allocation that is appropriate for a given person in
terms of their appetite for and ability to shoulder risk.
Examples of asset classes:
* Cash ( money market accounts)
* Bonds: investment grade or junk (high yield); government or corporate; short-term, intermediate, long-term; domestic, foreign, emerging markets
* Stocks: value or growth; large-cap versus small-cap; domestic, foreign, emerging markets
* Real estate
* Foreign currency
* Natural resources
* Precious metals
* Luxury collectibles such as art, fine wine and automobiles
* Real Estate Investment Trusts (REITs)
* International Investments: Foreign or emerging markets
* Life settlements
What are the various Asset-Allocation Strategies ?

Dynamic Asset Allocation
One of the popular allocation schemes is dynamic asset allocation, with which one actively moderates the mix of assets as markets soar and falter. With this strategy one sells assets which are losing value and buys those assets which are gaining. This strategy can diametrically opposite to a constant-weighting scheme.
Strategic Asset Allocation
Strategic asset allocation is a strategy that establishes and sticks to what is called a ‘Base policy mix’. This is a proportional combination of assets based on expected rates for class of asset.
For instance, if the statistical data shows that stock-market has historically returned 20% per year and bonds have returned 10% per year,
a mix of 50% stocks and 50% bonds would be expected to return 15% (= 0.5 * 20 + 0.5 * 10) per year.
Constant-Weighting Asset Allocation
The Strategic asset allocation usually employs a Buy-and-Hold strategy, even though the variations in the actual worth of the assets cause a dramatic change in the initially established policy mix. For this reason, one might prefer to use a constant-weighting approach for asset allocation. In this scheme, one continually rebalances the portfolio.
For instance, if asset A were declining in value, one would purchase more of that asset, and if that asset value increases, then one would sell it.
There are no rigid rules for the frequency of portfolio rebalancing under strategic/constant-weighting asset allocation techniques. Although, a widely accepted norm is that the portfolio must be rebalanced to its original mix when any given allocated asset varies more than 5% in value.
Tactical Asset Allocation
Over the long run, a strategic asset allocation strategy does not allow much flexibility. So, one may find it useful to engage in short-term, tactical deviations from the mix in order to capitalize on the out-of-the-line
investment opportunities. This flexibility imparts a degree of of market timing to one’s portfolio, letting one participate in economic conditions that are more suited to a particular asset class.
So, in some sense, Tactical asset allocation can be described as a moderately active strategy, since the overall strategic asset mix is returned to when desired short-term profits are achieved.


Related posts:

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2. Cash Flows Classification (7.683) Cash Flows Classification ...
3. Options Trading Strategies (7.197) The simmering Sino-US relationships, paroxysms in European bond market...
4. VaR Methodology: Shortcomings (6.516) Var Methodology: Shortcomings...Pristine Careers
   More than 250,000 Man hours of Quality Training
   * One stop for Financial Trainings View Details
   * Innovative Content Visualize FRM Diagnostic FRM
   * Question Solving Sessions View Details
   * Topic Expert Model Learn from the
   * Masters of the Trade View Detail
   * It is no wonder that 53%  of our new students come  from recommendation of old  students

Effective Asset allocation Techniques

 

Asset allocation is the strategy used in choosing between the various kinds of possible investments, in other words,
the strategy used in choosing in what asset classes such as stocks and bonds one wants to invest.
A large part of financial planning consists of finding an asset allocation that is appropriate for a given person in
terms of their appetite for and ability to shoulder risk.
Examples of asset classes:
* Cash ( money market accounts)
* Bonds: investment grade or junk (high yield); government or corporate; short-term, intermediate, long-term; domestic, foreign, emerging markets
* Stocks: value or growth; large-cap versus small-cap; domestic, foreign, emerging markets
* Real estate
* Foreign currency
* Natural resources
* Precious metals
* Luxury collectibles such as art, fine wine and automobiles
* Real Estate Investment Trusts (REITs)
* International Investments: Foreign or emerging markets
* Life settlements
What are the various Asset-Allocation Strategies ?

Dynamic Asset Allocation
One of the popular allocation schemes is dynamic asset allocation, with which one actively moderates the mix of assets as markets soar and falter. With this strategy one sells assets which are losing value and buys those assets which are gaining. This strategy can diametrically opposite to a constant-weighting scheme.
Strategic Asset Allocation
Strategic asset allocation is a strategy that establishes and sticks to what is called a ‘Base policy mix’. This is a proportional combination of assets based on expected rates for class of asset.
For instance, if the statistical data shows that stock-market has historically returned 20% per year and bonds have returned 10% per year,
a mix of 50% stocks and 50% bonds would be expected to return 15% (= 0.5 * 20 + 0.5 * 10) per year.
Constant-Weighting Asset Allocation
The Strategic asset allocation usually employs a Buy-and-Hold strategy, even though the variations in the actual worth of the assets cause a dramatic change in the initially established policy mix. For this reason, one might prefer to use a constant-weighting approach for asset allocation. In this scheme, one continually rebalances the portfolio.
For instance, if asset A were declining in value, one would purchase more of that asset, and if that asset value increases, then one would sell it.
There are no rigid rules for the frequency of portfolio rebalancing under strategic/constant-weighting asset allocation techniques. Although, a widely accepted norm is that the portfolio must be rebalanced to its original mix when any given allocated asset varies more than 5% in value.
Tactical Asset Allocation
Over the long run, a strategic asset allocation strategy does not allow much flexibility. So, one may find it useful to engage in short-term, tactical deviations from the mix in order to capitalize on the out-of-the-line
investment opportunities. This flexibility imparts a degree of of market timing to one’s portfolio, letting one participate in economic conditions that are more suited to a particular asset class.
So, in some sense, Tactical asset allocation can be described as a moderately active strategy, since the overall strategic asset mix is returned to when desired short-term profits are achieved.


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Cash Flows Classification

 

The statement of cash flows is divided into three sections:
(A) Financing activities
(B) Operating activities
(C) Investing activities
(A) Cash flow from financing activities (CFF)
CFF is cash flow that comes into play from generating or letting cash through the issuance of additional equity, short or long-term debt for the firm’s operations. This covers:
(a) Cash inflow (+)
1. Sale of equity securities
2. Issuance of debt securities
(b) Cash outflow (-)
1. Dividends to shareholders
2. Redemption of long-term debt
3. Redemption of capital stock
Reporting Noncash Investing and Financing Transactions
Data for the Statement of cash flows(SOCF) is derived from three places:
(a) Comparative balance sheets
(b) Current income statements
(c) Selected transaction data
(B) Cash Flow from Operating Activities (CFO)
CFO is cash flow that comes into play from regular operations such as revenues and cash operating expenses net of taxes.

This category covers:
(a) Cash inflow (+)
1. Revenue from sale of goods and services
2. Dividends (from equities of other entities)
3. Interest (from debt instruments of other entities)
(b) Cash outflow (-)
1. Payments to lenders
2. Payments to employees
3. Payments to suppliers
4. Payments to government
5. Payments for other expenses
2. Cash Flow from Investing Activities (CFI)
CFI is cash flow that comes to play through investment activities such as the acquisition or disposition of current and fixed assets.
This category covers:
(a) Cash inflow (+)
1. Sale of property, plant and equipment
2. Sale of debt or equity securities (other entities)
3. Collection of principal on loans to other entities
(b) Cash outflow (-)
1. Purchase of property, plant and equipment
2. Purchase of debt or equity securities (other entities)
3. Lending to other entities
There are however, some investing and financing activities that don’t flow through the statement of cash flow because they do not engage cash transactions.
Simple instances of this category are:
(1) Acquisition of assets through capital leases
(2) Acquisition of long-term assets by issuing notes payable
(3) Conversion of debt to equity
(4) Conversion of preferred equity to common equity
(5) Acquisition of non-cash assets like patents, licenses in exchange for equity or securities


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Cash Flows Classification

 

The statement of cash flows is divided into three sections:
(A) Financing activities
(B) Operating activities
(C) Investing activities
(A) Cash flow from financing activities (CFF)
CFF is cash flow that comes into play from generating or letting cash through the issuance of additional equity, short or long-term debt for the firm’s operations. This covers:
(a) Cash inflow (+)
1. Sale of equity securities
2. Issuance of debt securities
(b) Cash outflow (-)
1. Dividends to shareholders
2. Redemption of long-term debt
3. Redemption of capital stock
Reporting Noncash Investing and Financing Transactions
Data for the Statement of cash flows(SOCF) is derived from three places:
(a) Comparative balance sheets
(b) Current income statements
(c) Selected transaction data
(B) Cash Flow from Operating Activities (CFO)
CFO is cash flow that comes into play from regular operations such as revenues and cash operating expenses net of taxes.

This category covers:
(a) Cash inflow (+)
1. Revenue from sale of goods and services
2. Dividends (from equities of other entities)
3. Interest (from debt instruments of other entities)
(b) Cash outflow (-)
1. Payments to lenders
2. Payments to employees
3. Payments to suppliers
4. Payments to government
5. Payments for other expenses
2. Cash Flow from Investing Activities (CFI)
CFI is cash flow that comes to play through investment activities such as the acquisition or disposition of current and fixed assets.
This category covers:
(a) Cash inflow (+)
1. Sale of property, plant and equipment
2. Sale of debt or equity securities (other entities)
3. Collection of principal on loans to other entities
(b) Cash outflow (-)
1. Purchase of property, plant and equipment
2. Purchase of debt or equity securities (other entities)
3. Lending to other entities
There are however, some investing and financing activities that don’t flow through the statement of cash flow because they do not engage cash transactions.
Simple instances of this category are:
(1) Acquisition of assets through capital leases
(2) Acquisition of long-term assets by issuing notes payable
(3) Conversion of debt to equity
(4) Conversion of preferred equity to common equity
(5) Acquisition of non-cash assets like patents, licenses in exchange for equity or securities


Pristine Careers
More than 250,000 Man hours of Quality Training
* One stop for Financial Trainings View Details
* Innovative Content Visualize FRM Diagnostic FRM
* Question Solving Sessions View Details
* Topic Expert Model Learn from the
* Masters of the Trade View Detail
* It is no wonder that 53%  of our new students come  from recommendation of old  students