CAIA EXAM Q&A
Bailey Criteria - Answer-Unambiguous, investible, measurable, pre-specified,
appropriate
Manager selection - Answer-Wish list, Deal sourcing, Due diligence (screening, team
meeting, evaluation, final due diligence), Decision, Commitment
Alternative Methods for Estimated Betas - Answer-Proxying the beta using the historical
performance of a similar publicly traded asset
using another relative risk measurement
estimating bottom-up betas
modifying return data to estimate a beta
Source of liquidity - Answer-follow-on funding, liquidity lines, maturing investments,
realizations, selling limited partnership, distributions, limited parter default
Reasons interventionist outperform - Answer-Acting as an active shareholder
Ensuring interests are properly aligned
Talking advantage of portfolio relatedness
Avoiding corporate overhead costs
Focusing on an exit strategy
SPGSCI - Answer-performs best when energy prices are rising and commodity mkts are
in backwardation
DJAIG - Answer-Agriculture and metals either increase more in price or have greater
backwardation than energer
Bache Commodity Index - Answer-mkts are in contango and has lower drawdowns than
other indices when mkts decline
Rogers Int'l Commodity Index - Answer-agriculture outperforms metal and energy, when
natural gas prices decline, and when the USD depreciaes relative to the JPY CAD and
AUD
ML Commodity Index Xtra - Answer-energy prices are rising and in contangoed mkts as
a result of relatively long maturities
CRB Index - Answer-agriculture outperforms other commodity sectors and when mkts
are in contango
DB Liquid Commodity Index - Answer-forward curves are upward sloping and when
grains and energy performs well
, Diapason Comodities Index - Answer-illiquid mkts trend higher
JPM Commodity Curve Index - Answer-front contracts underperform deferred contracts
and outperforms other indices when rolls are negative
UBS Bloomberg - Answer-agriculture and metals outperform energy. all indices in the
series outperform SPGSCI and DJAIG in contangoed mkt
four factors - Answer-carry factor
trend factor
value factor
volatility factor
Carry factor exposure - Answer-+ exposure implies the manager is long high int
currencies and short low int currencies.
- implies value-oriented or divergence trader
Trend factor exposure - Answer-+ exposure implies momentum approach
- implies contrarian approach
Value factor exposure - Answer-+ implies being long/short undervalued/overvalued
currenties based on PPP
- implies carry factor emphasis
Volatility factor exposure - Answer-+ implies long volatility, portfolios are exposed to
positive effect from rising volatility
Gamma - Answer-measures the convexity of the convertible-stock price relationship
Vega - Answer-always positive, highest for at the money, measures convertible's price
sensitivity relative to changes in stock volatility
Rho - Answer-measures the convertible's price sensitivity relative to changes in interest
rates
Chi - Answer-measures sensitivity to changes in currency value
Omicron - Answer-credit spread
upsilon - Answer-recovery rate
phi - Answer-underlying stock dividend yield
Theta - Answer-changes in time
Bailey Criteria - Answer-Unambiguous, investible, measurable, pre-specified,
appropriate
Manager selection - Answer-Wish list, Deal sourcing, Due diligence (screening, team
meeting, evaluation, final due diligence), Decision, Commitment
Alternative Methods for Estimated Betas - Answer-Proxying the beta using the historical
performance of a similar publicly traded asset
using another relative risk measurement
estimating bottom-up betas
modifying return data to estimate a beta
Source of liquidity - Answer-follow-on funding, liquidity lines, maturing investments,
realizations, selling limited partnership, distributions, limited parter default
Reasons interventionist outperform - Answer-Acting as an active shareholder
Ensuring interests are properly aligned
Talking advantage of portfolio relatedness
Avoiding corporate overhead costs
Focusing on an exit strategy
SPGSCI - Answer-performs best when energy prices are rising and commodity mkts are
in backwardation
DJAIG - Answer-Agriculture and metals either increase more in price or have greater
backwardation than energer
Bache Commodity Index - Answer-mkts are in contango and has lower drawdowns than
other indices when mkts decline
Rogers Int'l Commodity Index - Answer-agriculture outperforms metal and energy, when
natural gas prices decline, and when the USD depreciaes relative to the JPY CAD and
AUD
ML Commodity Index Xtra - Answer-energy prices are rising and in contangoed mkts as
a result of relatively long maturities
CRB Index - Answer-agriculture outperforms other commodity sectors and when mkts
are in contango
DB Liquid Commodity Index - Answer-forward curves are upward sloping and when
grains and energy performs well
, Diapason Comodities Index - Answer-illiquid mkts trend higher
JPM Commodity Curve Index - Answer-front contracts underperform deferred contracts
and outperforms other indices when rolls are negative
UBS Bloomberg - Answer-agriculture and metals outperform energy. all indices in the
series outperform SPGSCI and DJAIG in contangoed mkt
four factors - Answer-carry factor
trend factor
value factor
volatility factor
Carry factor exposure - Answer-+ exposure implies the manager is long high int
currencies and short low int currencies.
- implies value-oriented or divergence trader
Trend factor exposure - Answer-+ exposure implies momentum approach
- implies contrarian approach
Value factor exposure - Answer-+ implies being long/short undervalued/overvalued
currenties based on PPP
- implies carry factor emphasis
Volatility factor exposure - Answer-+ implies long volatility, portfolios are exposed to
positive effect from rising volatility
Gamma - Answer-measures the convexity of the convertible-stock price relationship
Vega - Answer-always positive, highest for at the money, measures convertible's price
sensitivity relative to changes in stock volatility
Rho - Answer-measures the convertible's price sensitivity relative to changes in interest
rates
Chi - Answer-measures sensitivity to changes in currency value
Omicron - Answer-credit spread
upsilon - Answer-recovery rate
phi - Answer-underlying stock dividend yield
Theta - Answer-changes in time
