Tricky L3 Terms:

Behavioral Finance

belief perseverence = anchoring

Anchoring & Adjustment = conservatism.

Self-Attribution Bias = cognitive dissonance

bayesian rigidity = rigid views.

Heuristics = rules of thumb

Individual IPS

human capital = implied assets

supperannuation = longevity risk

Fixed Income

Key rate duration is also known as multifunctional duration.

Contingent Claim Risk = Call Risk... also applies to MBS

Equity

Semiactive strategies = enhanced index = risk controlled active strategies

Emerging Mkts Finance

Correlation Breakdown:

- describes the rapid increase in correlation during times of crises...specifically when you need
the benefits of diversification.

- correlation is not truly due to co-movement correlation, but one of increased volatility.

Alternate Investments

Samuelson effect: In regards to convenience yield,

- term structure of forward price volatility declines with time to expiration of futures.
 - This is caused by the expectation, although at shorter horizons mismatched supply and
demand forces for the underlying commodity increase the volatility of cash prices, these forces
will fall into equilibrium at longer horizons.

Risk Mgmt

Herstatt risk = settlement risk

variance-covariance method for VAR calculation = delta normal method = analytical method

Swaps

FS(2,5) = fixed-rate swap established in 2 years, expiring in 5 yrs (i.e. 3-year swap term)

Performance Attribution

Macro Attribution = Beta

Micro Attribution = Alpha