In the previous blog post, we explored the historical approach for estimating the Equity Risk Premium (ERP). The historical approach is a widely used method that is simple to implement. However, it relies on the assumption that the future will resemble the past, which often does not hold true in financial markets. In this blog post, we will … Continue reading Coding towards CFA (43) – Equity Risk Premium Estimates using Forward-Looking Approach →

In this blog post, I will begin exploring the topic of equity valuation, one of the most emphasised areas in the CFA Level 2 curriculum. Before delving into the various equity valuation models, I intend to use this and the next few blog posts to discuss how to estimate the equity risk premium (ERP) and … Continue reading Coding towards CFA (42) – Equity Risk Premium Estimates using Historical Approach →

This is another code-less blog post in my "Coding Towards CFA" series. The concepts of the Cobb-Douglas Production Function and the Neoclassical Growth Model are too important to skip, which is essential for building a strong foundation in economics and of course for pass on the CFA exam. Neoclassical growth theory is a framework for understanding economic growth, analysing how the … Continue reading Coding towards CFA (41) – Cobb-Douglas Production Function and Neoclassical Growth Model →

As discussed in the previous blog post, under the Uncovered Interest Rate Parity condition, the expected change in the exchange rate between two currencies should theoretically offset the interest rate differential between them. This would eliminate any opportunity for investors to profit from interest rate differentials. Fortunately, in the real world, uncovered Interest Rate Parity … Continue reading Coding towards CFA (40) – FX Carry Trade →

This is the first code-less blog post in my Coding Towards CFA series. I’ve included this topic because of the importance of International Parity Conditions, which form the theoretical foundation of forex trading. These conditions are essential for gaining a deep understanding of equilibrium pricing, enabling investors to navigate the FX market more effectively. One of the main … Continue reading Coding towards CFA (39) – International Parity Conditions →

Mark-to-Market (MTM) is the process of valuing an asset, liability, or financial instrument, such as a forex forward contract, at its current market price rather than its book value or historical cost. The calculated MTM value represents the profit or loss that would be realised if the contract were settled at the current market exchange … Continue reading Coding towards CFA (38) – Mark-to-Market of Forex Forward Contract →

Triangular arbitrage is a strategy used to exploit inefficiencies in the currency markets by executing a series of trades across three currencies in different markets. Let’s assume we now observe the following quotes for currency pairs from the interbank market and dealers. We want to analyse whether there is any arbitrage opportunity. Interbank Market Quotes … Continue reading Coding towards CFA (37) – Triangular Arbitrage in Forex Trading →

Value at Risk (VaR) is arguably the most widely used metric for risk management. It quantifies the potential loss in the value of a portfolio over a certain period. In this blog post, I will first provide an overview of VaR, clarifying its definition and discussing its advantages and disadvantages. Then, I will implement Python code … Continue reading Coding towards CFA (33) – VaR Overview and the Historical Method →