CAIA LEVEL 1 EXAMS SCRIPT 2025/2026 QUESTIONS WITH
ANSWERS TAGGED A+
✔✔Bailey Criteria - ✔✔Unambiguous, investible, measurable, pre-specified, appropriate
✔✔Manager selection - ✔✔Wish list, Deal sourcing, Due diligence (screening, team
meeting, evaluation, final due diligence), Decision, Commitment
✔✔Alternative Methods for Estimated Betas - ✔✔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 - ✔✔follow-on funding, liquidity lines, maturing investments,
realizations, selling limited partnership, distributions, limited parter default
✔✔Reasons interventionist outperform - ✔✔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 - ✔✔performs best when energy prices are rising and commodity mkts are
in backwardation
✔✔DJAIG - ✔✔Agriculture and metals either increase more in price or have greater
backwardation than energer
✔✔Bache Commodity Index - ✔✔mkts are in contango and has lower drawdowns than
other indices when mkts decline
✔✔Rogers Int'l Commodity Index - ✔✔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 - ✔✔energy prices are rising and in contangoed mkts as
a result of relatively long maturities
✔✔CRB Index - ✔✔agriculture outperforms other commodity sectors and when mkts
are in contango
✔✔DB Liquid Commodity Index - ✔✔forward curves are upward sloping and when
grains and energy performs well
, ✔✔Diapason Comodities Index - ✔✔illiquid mkts trend higher
✔✔JPM Commodity Curve Index - ✔✔front contracts underperform deferred contracts
and outperforms other indices when rolls are negative
✔✔UBS Bloomberg - ✔✔agriculture and metals outperform energy. all indices in the
series outperform SPGSCI and DJAIG in contangoed mkt
✔✔four factors - ✔✔carry factor
trend factor
value factor
volatility factor
✔✔Carry factor exposure - ✔✔+ exposure implies the manager is long high int
currencies and short low int currencies.
- implies value-oriented or divergence trader
✔✔Trend factor exposure - ✔✔+ exposure implies momentum approach
- implies contrarian approach
✔✔Value factor exposure - ✔✔+ implies being long/short undervalued/overvalued
currenties based on PPP
- implies carry factor emphasis
✔✔Volatility factor exposure - ✔✔+ implies long volatility, portfolios are exposed to
positive effect from rising volatility
✔✔Gamma - ✔✔measures the convexity of the convertible-stock price relationship
✔✔Vega - ✔✔always positive, highest for at the money, measures convertible's price
sensitivity relative to changes in stock volatility
✔✔Rho - ✔✔measures the convertible's price sensitivity relative to changes in interest
rates
✔✔Chi - ✔✔measures sensitivity to changes in currency value
✔✔Omicron - ✔✔credit spread
✔✔upsilon - ✔✔recovery rate
✔✔phi - ✔✔underlying stock dividend yield
ANSWERS TAGGED A+
✔✔Bailey Criteria - ✔✔Unambiguous, investible, measurable, pre-specified, appropriate
✔✔Manager selection - ✔✔Wish list, Deal sourcing, Due diligence (screening, team
meeting, evaluation, final due diligence), Decision, Commitment
✔✔Alternative Methods for Estimated Betas - ✔✔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 - ✔✔follow-on funding, liquidity lines, maturing investments,
realizations, selling limited partnership, distributions, limited parter default
✔✔Reasons interventionist outperform - ✔✔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 - ✔✔performs best when energy prices are rising and commodity mkts are
in backwardation
✔✔DJAIG - ✔✔Agriculture and metals either increase more in price or have greater
backwardation than energer
✔✔Bache Commodity Index - ✔✔mkts are in contango and has lower drawdowns than
other indices when mkts decline
✔✔Rogers Int'l Commodity Index - ✔✔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 - ✔✔energy prices are rising and in contangoed mkts as
a result of relatively long maturities
✔✔CRB Index - ✔✔agriculture outperforms other commodity sectors and when mkts
are in contango
✔✔DB Liquid Commodity Index - ✔✔forward curves are upward sloping and when
grains and energy performs well
, ✔✔Diapason Comodities Index - ✔✔illiquid mkts trend higher
✔✔JPM Commodity Curve Index - ✔✔front contracts underperform deferred contracts
and outperforms other indices when rolls are negative
✔✔UBS Bloomberg - ✔✔agriculture and metals outperform energy. all indices in the
series outperform SPGSCI and DJAIG in contangoed mkt
✔✔four factors - ✔✔carry factor
trend factor
value factor
volatility factor
✔✔Carry factor exposure - ✔✔+ exposure implies the manager is long high int
currencies and short low int currencies.
- implies value-oriented or divergence trader
✔✔Trend factor exposure - ✔✔+ exposure implies momentum approach
- implies contrarian approach
✔✔Value factor exposure - ✔✔+ implies being long/short undervalued/overvalued
currenties based on PPP
- implies carry factor emphasis
✔✔Volatility factor exposure - ✔✔+ implies long volatility, portfolios are exposed to
positive effect from rising volatility
✔✔Gamma - ✔✔measures the convexity of the convertible-stock price relationship
✔✔Vega - ✔✔always positive, highest for at the money, measures convertible's price
sensitivity relative to changes in stock volatility
✔✔Rho - ✔✔measures the convertible's price sensitivity relative to changes in interest
rates
✔✔Chi - ✔✔measures sensitivity to changes in currency value
✔✔Omicron - ✔✔credit spread
✔✔upsilon - ✔✔recovery rate
✔✔phi - ✔✔underlying stock dividend yield
