Examination and Other Requirement
Details
Advanced Portfolio Management Exam
(Investments) Exam Spring 2007 This examination consists of six hours of
written-answer questions. A read-through time will be given prior
to the start of the exam, 15 minutes in the morning session and 15
minutes in the afternoon session. Learning Objectives:
- Pricing Theory and
Practice
Learning Outcomes
The candidate will be able to: - Demonstrate mastery of option pricing techniques and theory for
equity (including exotic options) and interest rate
derivatives.
- Derive the Black Scholes pricing formula
- Identify limitations behind various option pricing
techniques.
- Describe how option pricing models can be modified or
alternative techniques that can be used to deal with option pricing
techniques limitations
- Explain how numerical methods can be used to effectively model
complex assets or liabilities
- Portfolio Benchmarks and Risk
Measures
Learning Outcomes
The candidate will be able to: - Define and describe Coherent Risk Measures: translation
invariance, subadditivity, positive homogeneity, and
monotonicity.
- Distinguish relative VaR, marginal VaR, increment VaR and
CTE
- Calculate and apply the hedge ratios
- Establish appropriate benchmarks for a portfolio and understand
how to measure performance against those benchmarks.
- Advanced Portfolio
Management
Learning Outcomes
The candidate will be able to:
- Evaluate key considerations in developing investment policies
for financial institutions and pension plans.
- Incorporate the parameters affecting the client's needs in an
asset-liability management framework
including funding objectives, risk/return tradeoffs, regulatory and
rating agency requirements, concerns about solvency, capital, tax
and accounting considerations, and management constraints.
- Develop a portfolio appropriately supporting liabilities. Set
portfolio policy and objectives, specifying asset selection
criteria, incorporate capital market expectations, and risk
management strategies including hedging
- Apply different types of asset allocation strategies and
evaluate traditional alternative asset classes
- Portfolio Rebalancing: Identify investment strategies that do
not currently achieve portfolio management objectives and recommend
appropriate changes. Improved strategies may include shifts in
asset allocation, use of swaps, forwards, and futures, and use of
options
- Embedded Options: Complete analysis that may include
calculation of hedging cost, deterministic and stochastic analysis
of cash flow, reserves, and capital levels under a range of
economic environments
- Review case studies of actual or hypothetical situations and
show how to develop and implement an appropriate risk management
strategy to meet the portfolio requirements.
- Choose between alternative strategies and justify such
choices.
- Behavioral Finance
Learning Outcomes
The candidate will be able to:
- Identify and apply the concepts of behavioral finance with
respect to option holder behavior, including the assessment of
optimal behavior, real behavior, model behavior, and empirical
studies.
- Explain how behavioral characteristics of individuals or firms
affect the investment or capital management process.
- Compare intrinsic value to market value and explain how
behavioral finance could account for the difference.
- Explain why a historical equity risk premium may not be
indicative of future expectations
- Financial Markets Modeling
Techniques
Learning Outcomes
The candidate will be able to: - Criticize the following modeling methods:
- deterministic vs. stochastic
- single period vs. multiple period
- one vs. multiple factors
- realistic vs. risk-neutral
- equilibrium vs. arbitrage-free
- actuarial vs. capital markets
- simulation vs. formula-based
- mean-reversion
- Recommend a modeling method for a given situation
- Define and apply the concepts of martingale, market price of
risk and measures in single and multiple state variable
contexts.
- Describe commonly used equity and interest rate models (and
their limitations), including:
- normal, lognormal, regime-switching, stochastic volatility, Cox-Ingersoll-Ross, Heath-Morton-Jarrow, compound Poisson, GARCH, inflation
models, copulas
- Contrast the models listed in the previous learning
outcome
- Recommend an equity or interest rate model for a given
situation
- Describe issues in the estimation or calibration of financial
models
- Credit Risk
Learning Outcomes
The candidate will be able to:
- Define and evaluate credit risk as related to fixed income
securities
- Define and evaluate spread risk as related to fixed income
securities
- Describe best practices in credit risk measurement, modeling
and management
- Describe the use of credit and underwriting policies,
diversification requirements
- Define credit risk as related to derivatives Define credit risk
as related to reinsurance ceded counter party risk . Describe the
use of comprehensive due diligence and aggregate counter-party exposure limits
- Describe risk mitigation techniques and practices: credit
derivatives, diversification, concentration limits, and credit
support agreements
- Describe the role of rating agencies in evaluating credit
risk
Textbooks for Advanced Portfolio Management
Exam
Asset/Liability Management of Financial
Institutions: Maximising Shareholder Value Through Risk-Conscious
Investing, Tilman, L.M., Euromoney Institutional Advisor,
2003, Chapters 6, 13, 14, 16
Handbook of Fixed Income Securities,
Fabozzi, F., Seventh Edition, 2005, McGraw Hill, Chapters, 1, 2,
10, 13, 16, 20, 22-25, 27-31, 47, 48
Investment Guarantees-Modeling and Risk
Management for Equity-Linked Life Insurance,Hardy, M., 2003,
John Wiley and Sons, Chapters, 1-4, 7-9, 12 Investment Management for
Insurers,Babbel, D., Fabozzi, F. J.,1999, Frank J. Fabozzi
& Associates, Chapters 3, 8, 11, 13, 19-21, 25, 26 Modern Investment Management: An
Equilibrium Approach, Litterman, R., 2003, John Wiley and
Sons, Chapters 10, 26 -28 Options, Futures, and Other
Derivatives,Hull, J.C., Sixth Edition, 2006, Prentice-Hall,
Chapters 3 (section 3.4 only), 10, 13, 14, 16, 17 (17.1-3, 17.6,
17.7 background only), 19-22, 24 (24.1-24.4), 25, 30 Risk Management,Crouhy, M., Galai,
M.R., 2001, Irwin/McGraw Hill, Chapters, 7-12 The Following Textbooks are Covered in the
Syllabus but may be Available as Study Notes, Check this Page for
Updates
Benchmarks and Investment
Management,Siegel, L., 2003, Research Foundation of AIMR (CFA
Institute), Chapter 9: V-C108-07
Handbook of Portfolio
Management,Fabozzi, F., 1998, Frank J. Fabozzi Associates,
Chapters 20, 21: V-C107-07
Managing Investment Portfolios, A Dynamic
Process,Maginn, J.L., Tuttle, D.L., Third Edition, Chapters,
11 and 12.: V-C129-07
The New Corporate Finance: Where Theory
Meets Practice,Chew, D., Third Edition, 2001, Irwin/McGraw
Hill, Chapter 5.32: V-C100-07
Stocks for the Long Run,Siegel, J. K.,
2002, Third Edition, McGraw Hill, Chapter 7: V-C124-07
Value at Risk,Jorion, P., Second
Edition , 2001, McGraw Hill, Chapter 7: V-C105-07
Advanced Portfolio Management Online
Readings The Online readings listed below are part of
the required Course of Reading for this Exam. These readings are
articles that are available online from the SOA, CCA, CIA, AAA and
the ASB.
"Equity Risk Premium: Expectations Great and Small" NAAJ,
January 2004.  "Application of Coherent Risk Measures to Capital
Requirements in Insurance", NAAJ, April 1999. 
Advanced Portfolio Management Study Note
Listings The study notes listed below are part of the
required Course of Reading for this exam. These Study Notes are not
available electronically and must be ordered by using the
Study
Note Information Form located on the Study Note
Information Page. Candidates should be sure to check this site
periodically for additional corrections or notices. V-C05-07 | Introductory Study Note | | V -C13-07 | Case Study | | V-C100-07 | Chapter 5.32 of The New Corporate Finance | | V-C101-07 | Quantitative Strategies Research Notes, "Model Risk" | formerly 8V-202-00 | V-C102-07 | Current Issues: Options-What Does An Option Pricing Model Tell
Us About Option Prices? | | V-C103-07 | Efficient Stochastic Modeling Utilizing Representative
Scenarios: Application to Equity Risks | | V-C104-07 | Use of Stochastic Techniques to Value Actuarial Liabilities
Under Canadian GAAP, CIA Research Paper | | V-C105-07 | Chapter 7 of Value At Risk: The New Benchmark For Managing
Financial Risk | | V-C106-07 | Life After VAR | | V-C107-07 | Chapters 20 & 21 of Handbook of Portfolio
Management | | V-C108-07 | Chapter 9 of Benchmarks And Investment Management | | V-C109-07 | Performance Measurement Using Transfer Pricing | formerly 8V-314-01 | V-C110-07 | A Note On Common Interest Rate Risk Measures | formerly 8V-321-05 | V-C111-07 | Creating Value In Pension Plans (Or, Gentlemen Prefer
Bonds) | formerly 8V-320-05 | V-C112-07 | Financial Reporting Developments-Accounting for Derivative
Instruments and Hedging Activities: A Comprehensive Analysis of
FASB Statement 133, As Amended and Interpreted (Overview and
Appendix C Only) | formerly 8V-121-03 | V-C113-07 | Asset Allocation In A Downside-Risk Framework | formerly 8V-113-00 | V-C114-07 | The Real Estate Portfolio Management Process | formerly 8V-123-04 | V-C115-07 | The Longevity Bond | formerly 8V-325-06 | V-C116-07 | Chapters 9, 18 and 19 of The Handbook of Mortgage Backed
Securities, Fourth Edition | formerly 8V-119-00 | V-C117-07 | Valuing The Option Component Of Debt And Its Relevance To
DCF-Based Valuation Methods | formerly 8FE-503-05 | V-C118-07 | High-Yield Bond Analysis: The Equity Perspective | formerly 8V-124-04 | V-C119-07 | From Efficient Markets Theory To Behavioral Finance | | V-C120-07 | The Efficient Market Hypothesis and Its Critics | | V-C121-07 | Anomalies: Risk Aversion | | V-C122-07 | Anomalies: The Law Of One Price In Financial Markets | | V-C123-07 | Assessing High House Prices: Bubbles, Fundamentals and
Misperceptions | | V-C124-07 | Chapter 7 of Stocks For The Long Run: The Definitive Guide
To Financial Market Returns and Long-Term Investment
Strategies, Third Edition | | V-C125-07 | Chapters 5 & 6 of The Oxford Guide To Financial
Modeling | formerly 8E-713-05 | V-C126-07 | Derivatives: Practices and Principles; | formerly 8V-114-00 | V-C127-07 | Liability-Relative Strategic Asset Allocation Policies | formerly 8V-323-05 | V-C128-07 | Financial Decision-Making in Markets and Firms: A Behavioral
Perspective | formerly 8V-201-00 | V-C129-07 | Chapters 11 and 12 of Managing Investment
Portfolios | | V-C130-07 | Total Return Approach to Performance Measurement | formerly 8V-311-00 | V-C131-07 | IFRS & US GAAP: A Pocket Comparison | | V-C132-07 | IFRS In Your Pocket | | V-C133-07 | International Financial Reporting Standards Checklist (IAS 39
only) | | V-C134-07 | Overview of Recent Prepayment Behavior and Advances in its
Modeling | formerly 8V-122-04 |
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