meaning

Interest rate formula

Timeline

Formula
PV and FV

Lump-sum
Annuity
Concept Type of cash flow
Perpetuity
Unequal CF

Ordinary
Annuity
Time
Annuity
Due

when, how?
Continuous
Formula

Annually
Payment frequency
Semi-annual
Discrete Quarterly
Monthly
etc..

How to Effective Annual Rate

compare and EAR Annualized and easy to compare

choose which Formula No arbitrage opportunities concept
term?

Find PV

Find FV

Calculator Find I/Y

Find PMT
Find N

Amortization table

Projected perpetuity CF at T<>0

Time index

Aggregated CF

Rate of compound growth

Number of periods for specific growth

Other
applications Funding a future obligation

NPV
Investment decision
IRR

Soạn thảo vào tháng 08/2021 bởi Phạm Hồng Quân

 Why do we learn? Application?

Regression equation from sample:

Y=aX+b
Level 1 and Level 2 (Major)

Correlation X and Y?

Need Data?

How to organize How to describe How to estimate

and visualize

Probability concept Probability distribution Sampling and estimation Hypothesis testing

Level 1

Soạn thảo vào tháng 08/2021 bởi Phạm Hồng Quân

 aka Numberical data
Quantitative data Discrete
Continuous
How data is analyzed
aka Categorical data
Qualitative data Nominal
Ordinal
Cross sectional
Data types
How data is collected Time series
Panel a mix of 2 types
Structured
how data form is organized
Unstructured

1 dimension table

Dimension

2 dimension table
Absolute frequency
Organizing
Relative frequency
data for Types
Cumulative absolute frequency
quantitative
Cumulative relative frequency
analysis
Count by interval use bin

Frequency

Contingency table Joint frequencies

Marginal frequencies

Histogram and Frequency polygon

Single bar
Bar chart Grouped bar
Clustered bar

Tree map

Visualizing

Word cloud
Dependent variable
Scatter plot
Independent variable

Heat map

Descriptive
statistics

Soạn thảo vào tháng 08/2021 bởi Phạm Hồng Quân

Data types

Organizing
data for
quantitative
analysis

Visualizing

Population mean vs Sample mean

Weighted mean
(portfolio return)

Trimmed 5% trimmed mean = arithmetic mean of remaining

Arithmetic mean value from 2.5th percentile to 97.5th percentile
mean
use 2.5th percentile i/o any
Mean 95% value <= 2.5th percentile
Winsorized winsorized
use 97.5th percentile i/o any
mean data =
value >= 97.5th percentile

Measures and remaining value

of central
Geometric mean Geometric mean return
tendency
Harmonic mean
Obs = 2n+1
Median
Obs = 2n
No mode
Mode Unimodal, bimodal, trimodal
Model interval
Quartile (4)
Quintile (5)
Measure of location Quantile Decile (10)
Location of p-th percentile = (Obs + 1) x p%
Percentile (100) Interpolate or extrapolate
Application: Calculate VaR
1 variable Range
MAD
Absolute Population
Variance & Formula
Standard Sample (use n-1)
deviation Downside risk

Measure of dispersion Derivatives

Target semi
deviation

Descriptive Coefficient of Variation

statistics Relative Sharpe ratio

SFRatio
Symmetrical
Skewness
Skewed to the left
Asymmetrical
Shape of distribution Skewed to the right
Kurtosis Excess kurtosis
Covariance Formula
2 variables Formula
Correlation
Non-linear?
Limitations
Spurious correlation?

Soạn thảo vào tháng 08/2021 bởi Phạm Hồng Quân

 Random variables
Outcome
Terms Mutually exclusive events
Event
Exhaustive events

properties of 0<=P(E)<=1
probability sum of all P(E) =1, if all events is
mutually exclusive & exhaustive
Probability Subjective Prob. personal judgment
Types
Empirical Past data
Objective Prob.
Priori logical analysis

convert Prob to Odds vice versa

Odds for & odds against

Unconditional probabilities
Tree diagram Conditional probabilities
Joint probability

Case Multiplication rule

Rules Addition rule
Total probability rule

Expected mean and variance with prob.

Port. return
Port. variance and
Application in Portfolio management standard deviation

Calculate covariance given

a joint probability funtion

Bayes's formula

Factorial
Combination
Counting
Permutaion

Soạn thảo vào tháng 08/2021 bởi Phạm Hồng Quân

 Random variables
Probability distribution
Terms Discrete Probability function P(X=a)
Functions Continuous PDF - Probability density function f(a)
CDF - Cumulative distribution function F(a)=P(X<=a)

Discrete uniform
Uniform distribution Continuous uniform

Bernoulli
Binomial distribution

Univariate distribution vs.

Multivariate distribution
50% -> 2/3
68% -> 1
Standard normal distribution Confidence intervals
95% -> 2 or 1.96

Normal distribution 99% -> 3 or 2.58

Standardizing a random variable
Shortfall risk = Probability that (return < min
acceptable level)
Applications Safety-first rule
SFRatio =

Continuously compounded
Lognormal distribution

symmetrical
less kurtosis, fatter tail than normal
Student's t-distribution
degrees of freedom

Exhibit 16. CFA curriculums 2022

Chi-square distribution

Exhibit 16. CFA curriculums 2022

F-distribution

Pros
Monte Carlo simulation
Application Cons

Soạn thảo vào tháng 08/2021 bởi Phạm Hồng Quân

 Population vs sample
Simple random sample
Systematic sample
Probability sampling
Stratified random sample
Sampling
methods Cluster sample
Sampling
Convenience sample
Non probability sampling
Judgmental sample
Sampling error
Sampling distribution

Sample mean distribution

Unbiasedness of the sample mean
Central limit theorem
Standard error of the sample mean

Point estimation
Degree of confidence vs significant level
Confidence
interval estimation Known population variance use Normal dist.
Estimate
use Student's t-dist when n<30
population Unknown population variance
use both when n>=30
mean
Unbiasedness
3 desirable properties
of an estimator Efficiency
Consistency

repeatedly draws samples from the

original observed data sample

Bootstrap

method
Resampling Exhibit 18 CFA curriculum 2022
each data set = original sample - 1 obs
Jackknife reduce bias of estimator
sample size = n -> n repetitions

Data snooping bias out of sample test to reduce

More info cost
Sample selection bias If sample size is too big
Possible to pick obs from other populations
Survivorship bias

Bias Implicit selection bias

Backfilled bias
Look-ahead bias
Time-period bias

Soạn thảo vào tháng 08/2021 bởi Phạm Hồng Quân

Objectives

Null hypothesis
1. State the hypotheses Alternative hypothesis
2 sided & 1 sided hypotheses
Student's t
2. Identify the appropriate test statistic Distribution of test statistic Chi square
F
Find significant level
3. Specifying significance level Type I (alpha) reject null when it's true
Process Errors (beta) do not reject null when it's false
Type II
The power of a test = 1-beta
Determine critical value
4. State the decision rule
Decision rule
5. Collect data and calculate test statistic Formula
Statistical decision
6. Make a decision
Economic decision

How to use

P-value Compare with significance level

Parametric test

Type Non parametric test

Single mean
Differences between means with independent
Mean
samples
Differences between means with dependent samples
Single variance
Test Variance
Equality of 2 variances with independent samples
Parametric test
Correlation
Spearman rank correlation coefficient

Soạn thảo vào tháng 08/2021 bởi Phạm Hồng Quân

 Linearity
Homoskedasticity
Assumptions Independence
Normality

Regression line
Dependent variable
Independent variable

Regression equation Regression coefficient

Intercept
Error term

SST
Sum of squares SSR
SSE
MSR
ANOVA Mean squares
MSE SEE
degree of freedom

R-squared
Coefficient of determination Meaning?
Measure of model fit
Limitation

Test of correlation
Test of slope coefficient Standard error of slope coefficient
Hypothesis tests Test of slope for dummy variable
Test of intercept

Point prediction
Standard error of the forecast
Prediction Interval prediction
Formula

Log-Lin model

Functional form Lin-Log model

Y-X Log-Log model

Soạn thảo vào tháng 08/2021 bởi Phạm Hồng Quân