It has been extremely long since I blog. I participated in AnalystForum actively which explains my absence from this blog.

So far, I have found the Level 3 to be a very different animal altogether compared with L1 and L2. There are so much qualitative materials involved. Moreover, the morning essay paper is scaring me due to the open-ended questions.

I was quite disappointed with the Schweser materials. I found the notes to be of poor quality. I have read most of the CFA textbooks and found that many areas of the Schweser notes differ. Some are just nonsense while some was not even found in the CFA text. Some examples are:

*** start examples ***

LOS26j. evaluate the theoretical and practical effects of including additional asset classes in an asset allocation;

My comment: Schweser focuses on the wrong theoretical and practical effects

LOS28g. demonstrate the process of rebalancing a portfolio to reestablish a desired dollar duration;

My comment: Schweser talk about controlling position rebalancing duration but this isn't in the text.

LOS28k. compare and contrast immunization strategies for a single liability, multiple

liabilities, and general cash flows;

My comment: Schweser gave three conditions that must be satisfied to immunize mulitple liabilities but CFAI text provided only two.

LOS28m. demonstrate the use of cash flow matching to fund a fixed set of future liabilities and contrast the advantages and disadvantages of cash flow matching to those of immunization strategies.

My comment: Schweser notes touch on extension of cash flow matching using combination matching but LOS did not mention the need to learn that.

LOS31d. compare and contrast duration-based approaches with interest rate sensitivity approaches to hedging mortgage securities.

My comment: Schweser gave 5 assumptions of two-bonds hedge but CFAI only gave 4.

LOS32m. compare and contrast long–short versus long-only investment strategies,

including their risks and potential alphas, and explain why greater pricing

inefficiency may exist on the short side of the market;

My comments: There is some loss of meaning when Schweser notes paraphrase the 4 reasons why there could be inefficiencies on the short side. E.g., Schweser notes forgot to mention that sell-side analyst could earn more commission recommending a 'buy' because there is a larger pool of potential buyers as compared to sellers.

LOS32o. compare and contrast the sell disciplines of active investors;

My comment: Why Schweser notes talk about turnover of active investors when LOS don’t require it?

*** end examples ***

As a result, I have to construct my own notes. In addition, I have found the Schweser Videos to be poorly produced. One of the main lecturer was very lousy. I gave up on him. Perhaps the number of L3 candidates are just too few for Schweser to invest in the L3 examinations.

The Qbank is also hopeless. It is just too easy. In other words, the entire Schweser package (notes + videos + Qbank) was a complete letdown. The exception is at least I can email to the Schweser professors to ask them question.

I have already studied one cycle. I am in my half cycle – Reading 34 to be prĂ©cised doing EOCs. There are 14 Readings to go which I hope I’ll complete doing all the EOCs by end of this month in April. For the entire month in May, I should be doing mock exams and past year exams. I have no intention to work in May. So I should have the full 30 days.

## Friday, April 15, 2011

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## 1 comment:

I came across your blog by accident. I think I can answer your question about duration. The formula you are using is an approximation that does not use calculus.

The exact formula is

D = - 1/V0 * dV/dY .

Now V = F *(1+Y)^-t , where F is the redemption price and dV/dY is the derivative (calculus meaning) of the present value with respect to the interest rate (or yield). Then dV/dY = F * -t * (1+Y)^(-t-1) . Since V0 = F * (1+Y)^-t, the formula gives exactly D = t for a zero coupon bond. The units are correct too because dimensionally the result is 1/Y, and Y is in units of 1/Years. So 1/Y is in years. I hope that helps.

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