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CAIA Level I: An Introduction to Core Topics in Alternative Investments, 2nd Edition

Book Description

The official study text for the Level I Chartered Alternative Investment Analyst (CAIA) exam

The Chartered Alternative Investment Analyst (CAIA) designation is the financial industry's first and only globally recognized program that prepares professionals to deal with the ever-growing field of alternative investments. The second edition of CAIA Level I: An Introduction to Core Topics in Alternative Investments contains comprehensive insights on the alternative investment issues a potential Level I candidate would need to know about as they prepare for the exam.

The information found here will help you build a solid foundation in alternative investment markets—with coverage of everything from the characteristics of various strategies within each alternative asset class to portfolio management concepts central to alternative investments.

  • Uses investment analytics to examine each alternative asset class

  • Examines quantitative techniques used by investment professionals

  • Addresses the unique attributes associated with the alternative investment space

  • Offers an online study guide outlining learning objectives and keywords

  • This book is a must-have resource for anyone contemplating taking the CAIA Level I exam. So if you're ready to take your first step toward the CAIA charter, take the time to understand the insights offered here.

    Table of Contents

    1. Cover
    2. Series
    3. Title Page
    4. Copyright
    5. Preface
      1. FOUNDATION
      2. BENEFITS
      3. THE CAIA PROGRAMS AND CAIA ALTERNATIVE INVESTMENT ANALYST SERIES
    6. Acknowledgments
    7. About the Authors
    8. PART One: Introduction to Alternative Investments
      1. Chapter 1: What Is an Alternative Investment?
        1. 1.1 ALTERNATIVE INVESTMENTS BY EXCLUSION
        2. 1.2 ALTERNATIVE INVESTMENTS BY INCLUSION
        3. 1.3 STRUCTURES AMONG ALTERNATIVE INVESTMENTS
        4. 1.4 INVESTMENTS ARE DISTINGUISHED BY RETURN CHARACTERISTICS
        5. 1.5 INVESTMENTS ARE DISTINGUISHED BY METHODS OF ANALYSIS
        6. 1.6 GOALS OF ALTERNATIVE INVESTING
        7. 1.7 OVERVIEW OF THIS BOOK
      2. Chapter 2: The Environment of Alternative Investments
        1. 2.1 THE PARTICIPANTS
        2. 2.2 FINANCIAL MARKETS
        3. 2.3 REGULATIONS
        4. 2.4 TAXATION
      3. Chapter 3: Statistical Foundations
        1. 3.1 FREQUENCY AND PROBABILITY DISTRIBUTIONS
        2. 3.2 COMPOUNDING MULTIPLE TIME PERIOD RETURNS
        3. 3.3 RETURN DISTRIBUTIONS AND AUTOCORRELATION
        4. 3.4 MOMENTS OF THE DISTRIBUTION: MEAN, VARIANCE, SKEWNESS, AND KURTOSIS
        5. 3.5 COMPUTING SAMPLE STATISTICS
        6. 3.6 MORE ON STANDARD DEVIATION AND VARIANCE
        7. 3.7 TESTING FOR NORMALITY
        8. 3.8 OTHER MEASURES OF RISK
        9. 3.9 ESTIMATING VALUE AT RISK (VAR)
        10. 3.10 TIME SERIES RETURN VOLATILITY MODELS
        11. 3.11 CONCLUSION
      4. Chapter 4: Risk, Return, and Benchmarking
        1. 4.1 BENCHMARKING
        2. 4.2 ASSET PRICING MODELS
        3. 4.3 THREE METHODS OF MODELS
        4. 4.4 CROSS-SECTIONAL VERSUS TIME-SERIES MODELS
        5. 4.5 SINGLE-FACTOR AND EX ANTE ASSET PRICING
        6. 4.6 EMPIRICAL ANALYSES WITH THE CAPM
        7. 4.7 MULTIFACTOR MODELS
        8. 4.8 ALTERNATIVE ASSET BENCHMARKING
        9. 4.9 CONCLUSION
      5. Chapter 5: Correlation, Alternative Returns, and Performance Measurement
        1. 5.1 CORRELATION
        2. 5.2 INTERNAL RATE OF RETURN
        3. 5.3 PROBLEMS WITH IRR
        4. 5.4 RETURNS BASED ON NOTIONAL PRINCIPAL
        5. 5.5 DISTRIBUTION OF CASH WATERFALL
        6. 5.6 PERFORMANCE MEASURES
      6. Chapter 6: Alpha and Beta
        1. 6.1 OVERVIEW OF BETA AND ALPHA
        2. 6.2 EX ANTE VERSUS EX POST ALPHA
        3. 6.3 INFERRING EX ANTE ALPHA FROM EX POST ALPHA
        4. 6.4 RETURN ATTRIBUTION
        5. 6.5 EX ANTE ALPHA ESTIMATION AND PERSISTENCE
        6. 6.6 RETURN DRIVERS
        7. 6.7 SUMMARY OF ALPHA AND BETA ANALYSIS
      7. Chapter 7: Hypothesis Testing in Alternative Investments
        1. 7.1 FOUR STEPS OF HYPOTHESIS TESTING
        2. 7.2 A TEST ASSUMING NORMALITY
        3. 7.3 TESTS WITH INFERENTIAL STATISTICS
        4. 7.4 SAMPLING AND TESTING PROBLEMS
        5. 7.5 CUMULATIVE RETURNS AND PERFORMANCE
        6. 7.6 STATISTICAL ISSUES IN ANALYZING ALPHA AND BETA
        7. 7.7 SUMMARY OF ALPHA AND BETA ESTIMATION
        8. 7.8 CONCLUSION
    9. PART Two: Real Assets
      1. Chapter 8: Land, Infrastructure, and Intangible Real Assets
        1. 8.1 LAND
        2. 8.2 TIMBER AND TIMBERLAND
        3. 8.3 FARMLAND
        4. 8.4 INFRASTRUCTURE
        5. 8.5 INTELLECTUAL PROPERTY
        6. 8.6 VALUATION AND VOLATILITY
        7. 8.7 HISTORICAL RISKS AND RETURNS
      2. Chapter 9: Real Estate Fixed-Income Investments
        1. 9.1 RESIDENTIAL MORTGAGES
        2. 9.2 COMMERCIAL MORTGAGES
        3. 9.3 MORTGAGE-BACKED SECURITIES MARKET
        4. 9.4 COLLATERALIZED MORTGAGE OBLIGATIONS
        5. 9.5 REAL ESTATE INVESTMENT TRUSTS
        6. 9.6 RISKS AND RETURNS OF MORTGAGE REITS
      3. Chapter 10: Real Estate Equity Investments
        1. 10.1 REAL ESTATE DEVELOPMENT
        2. 10.2 VALUATION AND RISKS OF REAL ESTATE EQUITY
        3. 10.3 ALTERNATIVE REAL ESTATE INVESTMENT VEHICLES
        4. 10.4 REAL ESTATE AND DEPRECIATION
        5. 10.5 REAL ESTATE EQUITY RISKS AND RETURNS
        6. 10.6 RISKS AND RETURNS OF EQUITY REITs
    10. PART Three: Hedge Funds
      1. Chapter 11: Introduction to Hedge Funds
        1. 11.1 DISTINGUISHING HEDGE FUNDS
        2. 11.2 HEDGE FUND TYPES
        3. 11.3 HEDGE FUND FEES
        4. 11.4 CONCLUSION
      2. Chapter 12: Hedge Fund Returns and Asset Allocation
        1. 12.1 DESCRIBING THE HEDGE FUND UNIVERSE
        2. 12.2 MEAN, VARIANCE, SKEWNESS, AND KURTOSIS OF STRATEGIES
        3. 12.3 CATEGORIZING HEDGE FUND STRATEGIES
        4. 12.4 SHOULD HEDGE FUNDS BE PART OF AN INVESTMENT PROGRAM?
        5. 12.5 DO HEDGE FUNDS UNDERMINE THE FINANCIAL MARKETS?
        6. 12.6 HEDGE FUND INDICES
        7. 12.7 CONCLUSION
      3. Chapter 13: Macro and Managed Futures Funds
        1. 13.1 MAJOR DISTINCTIONS BETWEEN STRATEGIES
        2. 13.2 GLOBAL MACRO
        3. 13.3 RETURNS OF MACRO INVESTING
        4. 13.4 MANAGED FUTURES
        5. 13.5 SYSTEMATIC TRADING
        6. 13.6 SYSTEMATIC TRADING STYLES
        7. 13.7 PRIOR EMPIRICAL RESEARCH
        8. 13.8 CONCLUSION
        9. 13.9 ANALYSIS OF HISTORICAL RETURNS CONCLUSION
      4. Chapter 14: Event-Driven Hedge Funds
        1. 14.1 THE SOURCES OF MOST EVENT STRATEGY RETURNS
        2. 14.2 ACTIVIST INVESTING
        3. 14.3 MERGER ARBITRAGE
        4. 14.4 DISTRESSED SECURITIES FUNDS
        5. 14.5 EVENT-DRIVEN MULTISTRATEGY FUNDS
      5. Chapter 15: Relative Value Hedge Funds
        1. 15.1 CONVERTIBLE BOND ARBITRAGE
        2. 15.2 VOLATILITY ARBITRAGE
        3. 15.3 FIXED-INCOME ARBITRAGE
        4. 15.4 RELATIVE VALUE MULTISTRATEGY FUNDS
      6. Chapter 16: Equity Hedge Funds
        1. 16.1 SOURCES OF RETURN
        2. 16.2 MARKET ANOMALIES
        3. 16.3 THE FUNDAMENTAL LAW OF ACTIVE MANAGEMENT
        4. 16.4 IMPLEMENTING ANOMALY STRATEGIES
        5. 16.5 THE THREE EQUITY STRATEGIES
        6. 16.6 CONCLUSION
      7. Chapter 17: Funds of Hedge Funds
        1. 17.1 BENEFITS AND COSTS OF DIVERSIFICATION
        2. 17.2 INVESTING IN MULTISTRATEGY FUNDS
        3. 17.3 INVESTING IN FUNDS OF HEDGE FUNDS
        4. 17.4 FUND OF FUNDS HISTORICAL RETURNS
        5. 17.5 CONCLUSION
    11. PART Four: Commodity
      1. Chapter 18: Commodity Futures Pricing
        1. 18.1 FORWARD AND FUTURES CONTRACTS
        2. 18.2 ROLLING CONTRACTS
        3. 18.3 THE TERM STRUCTURE OF FORWARD PRICES
        4. 18.4 BACKWARDATION AND CONTANGO
        5. 18.5 RETURNS ON FUTURES CONTRACTS
      2. Chapter 19: Commodities: Applications and Evidence
        1. 19.1 COMMODITY INVESTING FOR DIVERSIFICATION
        2. 19.2 COMMODITY INVESTING FOR RETURN ENHANCEMENT
        3. 19.3 INVESTING IN COMMODITIES WITHOUT FUTURES
        4. 19.4 COMMODITY EXPOSURE THROUGH FUTURES CONTRACTS
        5. 19.5 THREE FALLACIES OF ROLL RETURN
        6. 19.6 COMMODITY FUTURES INDICES
        7. 19.7 COMMODITY RISKS AND RETURNS
        8. 19.8 HISTORICAL RISKS AND RETURNS
    12. PART Five: Private Equity
      1. Chapter 20: Introduction to Private Equity
        1. 20.1 PRIVATE EQUITY TERMINOLOGY AND BACKGROUND
        2. 20.2 PRIVATE EQUITY AS EQUITY SECURITIES
        3. 20.3 PRIVATE EQUITY AS DEBT SECURITIES
        4. 20.4 TRENDS AND INNOVATIONS IN PRIVATE EQUITY
      2. Chapter 21: Equity Types of Private Equity
        1. 21.1 VENTURE CAPITAL VERSUS LBO
        2. 21.2 THE UNDERLYING BUSINESSES OF VENTURE CAPITAL
        3. 21.3 VENTURE CAPITAL FUNDS
        4. 21.4 VENTURE CAPITAL RISKS AND RETURNS
        5. 21.5 LEVERAGED BUYOUTS (LBO)
        6. 21.6 LEVERAGED BUYOUT RISKS AND RETURNS
      3. Chapter 22: Debt Types of Private Equity
        1. 22.1 MEZZANINE DEBT
        2. 22.2 DISTRESSED DEBT
        3. 22.3 RISKS OF DISTRESSED DEBT INVESTING
    13. PART Six: Structured Products
      1. Chapter 23: Credit Risk and the Structuring of Cash Flows
        1. 23.1 AN OVERVIEW OF CREDIT RISK
        2. 23.2 MODELING CREDIT RISK
        3. 23.3 STRUCTURAL MODEL APPROACH TO CREDIT RISK
        4. 23.4 REDUCED-FORM MODEL APPROACH TO CREDIT RISK
        5. 23.5 STRUCTURING USING COLLATERALIZED DEBT OBLIGATIONS
        6. 23.6 CONCLUSION
      2. Chapter 24: Credit Derivatives
        1. 24.1 CREDIT DERIVATIVE MARKETS
        2. 24.2 CREDIT DEFAULT SWAPS
        3. 24.3 OTHER CREDIT DERIVATIVES
        4. 24.4 RISKS OF CREDIT DERIVATIVES
        5. 24.5 CONCLUSION
      3. Chapter 25: Collateralized Debt Obligations
        1. 25.1 INTRODUCTION TO COLLATERALIZED DEBT OBLIGATIONS
        2. 25.2 BALANCE SHEET CDOS VERSUS ARBITRAGE CDOS
        3. 25.3 CASH-FUNDED CDOS VERSUS SYNTHETIC CDOS
        4. 25.4 CASH FLOW CDOS VERSUS MARKET VALUE CDOS
        5. 25.5 CREDIT RISK AND ENHANCEMENTS
        6. 25.6 NEW DEVELOPMENTS IN CDOS
        7. 25.7 RISKS OF CDOS
    14. PART Seven: Risk Management and Portfolio Management
      1. Chapter 26: Lessons from Hedge Fund Failures
        1. 26.1 PROBLEMS DRIVEN BY MARKET LOSSES
        2. 26.2 FAILURES DRIVEN BY FRAUD
        3. 26.3 CONCLUSION
      2. Chapter 27: Risk Analysis
        1. 27.1 INVESTMENT STRATEGY RISKS
        2. 27.2 MARKET RISK
        3. 27.3 OPERATIONAL RISK
        4. 27.4 INVESTMENT PROCESS RISK
        5. 27.5 CONTROLLING OPERATIONAL RISK
        6. 27.6 AGGREGATING THE RISKS OF A FUND
        7. 27.7 PORTFOLIOS WITH OPTIONS
        8. 27.8 CONCLUSION
      3. Chapter 28: Due Diligence of Fund Managers
        1. 28.1 SCREENING WITH THREE FUNDAMENTAL QUESTIONS
        2. 28.2 STRUCTURAL REVIEW
        3. 28.3 STRATEGIC REVIEW
        4. 28.4 ADMINISTRATIVE REVIEW
        5. 28.5 PERFORMANCE REVIEW
        6. 28.6 PORTFOLIO RISK REVIEW
        7. 28.7 LEGAL REVIEW
        8. 28.8 REFERENCE CHECKS
        9. 28.9 MEASURING OPERATIONAL RISK
      4. Chapter 29: Regression, Multivariate, and Nonlinear Methods
        1. 29.1 SINGLE-FACTOR MODELS AND REGRESSION
        2. 29.2 MULTIPLE-FACTOR MODELS AND REGRESSION
        3. 29.3 NONLINEAR RETURNS
        4. 29.4 CHANGING CORRELATION
        5. 29.5 APPLICATIONS OF MULTIFACTOR MODELS
        6. 29.6 HEDGE FUND PERFORMANCE PERSISTENCE
      5. Chapter 30: Portfolio Optimization and Risk Parity
        1. 30.1 MEAN-VARIANCE PORTFOLIO OPTIMIZATION
        2. 30.2 COMPLICATIONS TO MEAN-VARIANCE OPTIMIZATION
        3. 30.3 RISK BUDGETING
        4. 30.4 RISK PARITY
      6. Chapter 31: Portfolio Management, Alpha, and Beta
        1. 31.1 THE ESTIMATION OF ALPHA AND BETA
        2. 31.2 THE SEPARATION OF ALPHA AND BETA
        3. 31.3 PORTABLE ALPHA
        4. 31.4 ALPHA, BETA, AND PORTFOLIO ALLOCATION
        5. 31.5 CONCLUSION
    15. Appendix: Data Sources
      1. SOURCES FOR DESCRIPTIONS
      2. COMPUTATIONS AND EXPLANATIONS
    16. Index