Return Distributions and Statistics
Free CAIA Level I lesson in Introduction to Alternative Investments. 30 min read, ~4,478 words.
Four moments in order: mean, variance, skewness, kurtosis: variance is the second moment, not standard deviation. Correlation = covariance / (SD_A x SD_B): always between -1 and +1; covariance has no bound. Log returns and the lognormal distribution fix simple returns' -100% floor problem: log returns can be normally distributed...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- defining alts
- blurred lines
- history us
- history asia
- risk return characteristics
- goals
- buy sell side
- service providers
- legal structures
- fund types
- fund features
- fund terms
- drawdown fees
- waterfall calcs
- hedge fund fees
- fees and behavior
- return math
- irr
- irr problems
- modified irr
- other measures
- j curve
- notional principal
- return distributions
- moments
- covariance correlation
- beta autocorrelation
- std dev variance
- normality testing
- market efficiency
- time value
- forward rates
- arbitrage
- binomial trees
- single factor models
- hypothesis testing
- sampling problems
- forwards vs futures
- forward foundations
- forwards on rates
- carry forwards
- managing long short
- option exposures
- rate options
- rate swaps
- option pricing
- risk measures
- var
- benchmarking
- ratio measures
- risk adjusted
- pricing data
- appraisals smoothing
- alpha beta overview
- estimating alpha
- return attribution
- statistical issues
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