CFA® Program

Level III
PORTFOLIO MANAGEMENT PATHWAY
FORMULA SHEET (2025) Version 1.0
Prepared by: Fabian Moa, CFA, FRM, CTP, FMVA, AFM, FSA Credential

FOR REFERENCE ONLY

(Note: Formula Sheet is not provided in the CFA exam)
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CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Table of Contents
Setting Up the Texas BA II Plus Financial Calculator ............................................................................... 3
VOLUME 1 – ASSET ALLOCATION............................................................................................................ 3
Learning Module 1: Capital Market Expectations, Part 1: Framework and Macro Considerations ... 3
Learning Module 2: Capital Market Expectations, Part 2: Forecasting Asset Class Returns .............. 4
Learning Module 3: Overview of Asset Allocation .............................................................................. 9
Learning Module 4: Principles of Asset Allocation ............................................................................. 9
Learning Module 5: Asset Allocation with Real-World Constraints.................................................. 10
VOLUME 2 – PORTFOLIO CONSTRUCTION............................................................................................ 11
Learning Module 1: Passive Equity Investing .................................................................................... 11
Learning Module 2: Overview of Fixed Income Portfolio Management .......................................... 11
Learning Module 3: Asset Allocation to Alternative Investments .................................................... 13
Learning Module 4: Overview of Private Wealth Management ....................................................... 13
Learning Module 5: Portfolio Management for Institutional Investors ........................................... 15
Learning Module 6: Trading Costs and Electronic Markets .............................................................. 16
Learning Module 7: Case Study in Portfolio Management: Institutional (SWF) ............................... 16
VOLUME 3 – PERFORMANCE MEASUREMENT ..................................................................................... 17
Learning Module 1: Portfolio Performance Evaluation .................................................................... 17
Learning Module 2: Investment Manager Selection......................................................................... 20
Learning Module 3: Overview of the Global Investment Performance Standards........................... 21
VOLUME 4 – DERIVATIVES AND RISK MANAGEMENT .......................................................................... 23
Learning Module 1: Option Strategies .............................................................................................. 23
Learning Module 2: Swaps, Forwards, and Futures Strategies......................................................... 25
Learning Module 3: Currency Management An Introduction .......................................................... 27
PORTFOLIO MANAGEMENT PATHWAY................................................................................................. 29
Learning Module 1: Index-Based Equity Strategies .......................................................................... 29
Learning Module 2: Active Equity Investing: Strategies ................................................................... 29
Learning Module 3: Active Equity Investing: Portfolio Construction................................................ 30
Learning Module 4: Liability-Driven and Index-Based Strategies ..................................................... 32
Learning Module 5: Yield Curve Strategies ....................................................................................... 34
Learning Module 6: Fixed Income Active Management: Credit Strategies ...................................... 34
Learning Module 7: Trade Strategy and Execution........................................................................... 37
Learning Module 8: Case Study in Portfolio Management: Institutional ......................................... 38

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CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

CFA Level III – Formula Sheet (2025)

Setting Up the Texas BA II Plus Financial Calculator

Video: https://youtu.be/0MS8d8QOFmc

VOLUME 1 – ASSET ALLOCATION

Learning Module 1: Capital Market Expectations, Part 1: Framework and Macro

Considerations

ℎ ℎ
= +
ℎ

ℎ ℎ ℎ
where:
= +

ℎ ℎ ℎ
= +

= × "# × $
Aggregate market value of equity

$% =& +

Over a finite horizon:

$% = %Δ + %Δ" # + %Δ $ +

In the long-run:
$% = %Δ +

= Aggregate market value of equity

where:

= Nominal level of GDP

" # = Share of profits in the economy = -.*,
)*+
,
$ = P/E ratio

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CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Taylor Rule (Video: https://youtu.be/Cl_SShKmOwA)

∗
= 0 1 234 + 5 + 0.59:; − :; 2 0= > + 0.5(5 − 5 32@ )

∗
= target nominal policy rate
where:

0 1 234 = real neutral policy rate

5 = expected inflation rate 5 32@ = target inflation rate
:; = expected real GDP growth rates :; 2 0= = trend real GDP growth rates
∗
− 5 = real, inflation-adjusted policy rate

B − C = (" − D) + (E − )

B − C = Net exports
where:

" = Savings
D = Investment
E − = Government surplus

Learning Module 2: Capital Market Expectations, Part 2: Forecasting Asset Class

Returns

Grinold-Kroner model

Expected equity return

$(F ) ≈ + (%Δ$ − %ΔS) + %Δ ⁄$

= Dividend yield
.
where:

*
%Δ$ = Expected % change in total earnings
%Δ$ = Expected nominal earnings growth return
%ΔS = Expected % change in shares outstanding (%ΔS < 0: Net share repurchases)
%Δ ⁄$ = Expected % change in price-to-earnings ratio
%Δ ⁄$ = Expected repricing return
%Δ$ − %ΔS = Growth rate of earnings per share
− %ΔS = Expected cash flow (“income”) return
.
*
%Δ$ + %Δ ⁄$ = Expected capital gains

In the long run, %Δ$ = Nominal GDP growth, %ΔS = 0, %Δ ⁄$ = 0

Video: https://youtu.be/yOmaMz2YC18

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CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Risk Premium Approaches to Equity Returns

Equity-vs-bills premium = Term premium + Equity-vs-bond premium

Term premium = Return on bonds – Return on bills

Singer-Terhaar Approach

F -N
Risk premium under full integration:

F -
= LK,-N OK P Q
K
O-N

"ℎ
Risk premium under complete segmentation:
F +
= 1 × OK ×
K S

Singer-Terhaar risk premium, F K = TF K

-
+ (1 − T)F K
+

Expected return of asset class , $(FK ) = FU + F K

LK,-N = correlation between ith asset and global market portfolio

where:

OK = standard deviation of ith asset’s return

= Sharpe ratio of global market portfolio
V*WX
YWX
T = Degree of integration
FU = Risk-free rate

Note:
• Add liquidity premium where appropriate
• If Sharpe ratio of segmented market not given, use Sharpe ratio of global market
portfolio

Video: https://youtu.be/RK2WETqIzoQ

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CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Risk Premium (Building Block) Approach to Fixed Income Returns

Bond Required Return

Short-term fixed-rate
Real risk-free rate + Inflation premium
government bill
Long-term fixed-rate
Real risk-free rate + Inflation premium + Maturity premium
government bond
Long-term inflation-linked
Real risk-free rate + Maturity premium
government bond
Long-term fixed-rate Real risk-free rate + Inflation premium + Maturity premium
corporate bond + Credit premium
Long-term callable fixed- Real risk-free rate + Inflation premium + Maturity premium
rate corporate bond + Credit premium + Call risk

Real Estate

$(F2 ) = & + Z[D ℎ

Long-run:

$(F2 ) = & + Z[D ℎ − %Δ&

Finite horizon:

Capital Flows

$9%Δ"= ⁄\ > = ( − \)
+ (E −E \)
+ (& −& \)
In the long run
= = =

\)
+($% =
− $% + (] % =
−] % \
)

For a currency pair, ⁄ , if changes by ^% against , then changes by _`a − 1 against .

_
Currency

VCV Matrix with Sample Statistics

With Z assets, required:

• Z variances
b(bc_)
d
• covariances

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CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

VCV Matrices from Multi-Factor Models

h
Return on ith asset:

K = eK + f gKh ih + kK
#j_

h h
Variance of the ith asset:

OKd = f f gKl gK0 Ll0 + mKd

lj_ 0j_

h h
Covariance between ith and jth asset:

OKn = f f gKl gn0 Ll0

lj_ 0j_

With Z assets and o factors, required:

• (Z × o) factor sensitivities
h(h`_)
d
• factor covariances

eK = Intercept
where:

gKh = Asset’s sensitivity to the kth factor

ih = kth common factor return
kK = stochastic term (mean = zero)
Ll0 = correlation between mth and nth factors
mKd = variance of unique component of ith asset’s return

Video: https://youtu.be/XVpJ8yuTnqo

F = (1 − p) + pF 0<p<1
Smoothed Returns
c_

1+p
( )=P Q (F)
1−p

F = Current observed return F = Previous observed return

where:
c_
= Current true return ( ) = True variance

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CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

ARCH Model

O d = q + eO dc_ + grd q, e, g ≥ 0, e + g < 1

O d = q + (e + g)O dc_ + g(r d − O dc_ )

O d = Variance in period
where:

r = Unexpected component of return in period (mean = 0)

r d − O dc_ = Shock to variance in period

q
Unconditional expected value of variance

1−e−g

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CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Learning Module 3: Overview of Asset Allocation

$ Z t ℎ=$ −$ ]

$ =i + $^
$ ] =i ] + $^ ]

Learning Module 4: Principles of Asset Allocation

Mean-Variance Optimization

ul = $(Fl ) − 0.005pOl
d
Utility

ul = Investor’s utility for asset mix,

where:

Fl = Return for asset mix,

p = Investor’s risk aversion coefficient
Ol
d
= Expected variance of return for asset mix (in %)

" =C S −

C S
i =

ul = $9Fw,l > − 0.005pOw,l

Surplus Optimization
vV d

ulvV
= Surplus objective function’s expected value for asset mix m
where:

$9Fw,l > = Expected surplus return for asset mix

&ℎ − &ℎ
$9Fw,l > =
D
Ow,l = Surplus return volatility for asset mix
p = Investor’s risk aversion

Goals-based Asset Allocation

Video: https://youtu.be/ufo0cNWmfbo

9
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

1
Risk Parity

K ×& 9 K, x> = Oxd

K = Weight of asset
where:

& 9 K , x > = Covariance of asset with portfolio

= Number of assets
Ox = Variance of portfolio
d

Risk Budgeting

Marginal Contribution to Risk

C&EF = ×

ℎ
Actual Contribution to Risk
&EF = × C&EF

$^ −F S
F ^ C&EF =
C&EF

Learning Module 5: Asset Allocation with Real-World Constraints

After-tax Portfolio Optimization

3 = x (1 − )

O3 = Ox (1 − )

FFx
FF3 =
1−

3 = Expected after-tax return

x = Expected pre-tax return
where:

= Expected tax rate

O3 = Expected after-tax standard deviation
Ox = Expected pre-tax standard deviation
FF3 = After-tax rebalancing range
FFx = Pre-tax rebalancing range

10
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

VOLUME 2 – PORTFOLIO CONSTRUCTION

Learning Module 1: Passive Equity Investing

0
Herfindahl Hirschman Index (HHI)

yyD = f d
K
Kj_

where: K = Weight of stock in portfolio

1
$ S =
yyD

E S x =√ V{ cV|

$^ x = Fx − F}

Learning Module 2: Overview of Fixed Income Portfolio Management

$(F) = : +F
Expected fixed-income return

+$(&ℎ ~
ℎ S )
+$(&ℎ ~ )
+$(&ℎ ~
ℎ )

:
=
( ) &

−
F = ( ℎ )
)0= •

Rolling yield = Yield income + Rolldown return

&ℎ
1
$€ ~
• = −C × Δ: + ×& ^ × (Δ: )d
2
ℎ S

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CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

&ℎ
$€ ~
•

1
= −" × Δ" + ×" & ^ × (Δ" )d
2

F.ƒ = (1 + FUƒ )(1 + FU„ ) − 1

For foreign fixed income investments:

FUƒ = : +F
+$(&ℎ ~
ℎ S )
+$(&ℎ ~ )

FU„ = Percentage change in exchange rate (DC/FC)

$9".ƒ⁄Uƒ > − "•,.ƒ⁄Uƒ
= ( ℎ )
"•,.ƒ ⁄Uƒ
i.ƒ⁄Uƒ − "•,.ƒ ⁄Uƒ
= (ℎ )
"•,.ƒ ⁄Uƒ

Using Leverage in the Bond Portfolio

Leveraged portfolio return

= + ( …− †)
†
* …
)

… = return on invested funds

where:

† = cost of borrowing
† = borrowed funds
) = value of portfolio’s equity

Video: https://youtu.be/NadocNKzDBw

Z −C
Futures

] =
U1 12 w
C

E
Repo

= ×F ×
360

F =& −"
Securities Lending

12
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Cash Flow Matching

F %
ℎ =
1+& ℎ

Video: https://youtu.be/fB257bEp59c

C +C
d
+
& ^ =
(1 + & ℎ )d

Learning Module 3: Asset Allocation to Alternative Investments

− ×
Unsmoothed Returns
=
,2 x‰2 = c_,2 x‰2 =
,10wl‰‰ Š =
1−

where: = Serial correlation

Z =Z × (1 + ) + & −
Net Asset Value (NAV)
c_

& = F& × (&& − D& )

where:

= F × ‹Z c_ × (1 + )Œ

Learning Module 4: Overview of Private Wealth Management

( )× × (1 + )
b

y & =f
c_

j_ 91 + \ + >

( ) = Probability of surviving to year

where:

c_ = Income from employment in period − 1

= Annual wage growth rate
\ = Nominal risk-free rate
= Risk premium associated with occupational income volatility
Z = Length of working life in years

13
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

E ^
Taxes on Income

^ =
E ^

Accrual Taxes on Investment Returns

After-tax future value of a $1 investment, with returns taxed annually:

i •Ž = ‹1 + F(1 − a )Œ
Ž

= Initial investment
where:

F = Pretax return
a = Tax rate on investment income
E = Investment period (in years)

ℎ ℎ ^
E ^ =
D ℎ ^
(1 + F)Ž − ‹1 + F(1 − a )Œ
Ž
=
(1 + F)Ž − 1

After-tax inflation-adjusted future value of a $1 investment (accrual taxes):

1 + F(1 − a)
Ž
i =• •
•Ž, K0\4
1+

Deferral of Taxes on Capital Gains

ƒ-
the cost basis, ‘, expressed as percentage of the current market value of the
After-tax future value of a $1 investment, with deferred capital gains taxed at and

investment:

i ƒ- = (1 + F)Ž (1 − ƒ- ) + ƒ- ב

(1 + F)Ž − ‹(1 + F)Ž (1 − ƒ- ) + × ‘Œ

E ^ =
ƒ-
(1 + F)Ž − 1

After-tax inflation-adjusted future value of a $1 investment:

(1 + F)Ž (1 − ƒ- ) + ב
i =
ƒ-
ƒ-, K0\4
(1 + )Ž

14
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Learning Module 5: Portfolio Management for Institutional Investors

Defined Benefit Pension Plan

i
i =

i
i = −

Spending Policies (Endowment and Foundation)

" =" × (1 + D F )
Constant Growth rule:
`_

" =" × uC
Market Value rule:
`_

& ℎ C S
+ (1 − ) ×
Hybrid rule:
" `_ = ×

Bank and Insurance

)
Δ
Duration of equity capital,

=P Q − P − 1Q P Q
)
$ •
$ v
Δ

d d
O’)
d
=P Q O’•
d
+ P − 1Q O’v
d
⁄v − 2 P Q P − 1Q LO’•⁄• O’v⁄v
⁄)
$ ڥ
$ $ $

$
$% =

• = Duration of assets
v = Duration of liabilities
= Effective yield on liabilities
= Effective yield on assets
O’)⁄) = Variance of change in value of equity capital
d

O’•
d
ڥ = Variance of change in value of assets
O’v
d
⁄v = Variance of change in value of liabilities
L = Correlation between percentage value changes of assets and liabilities

15
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Learning Module 6: Trading Costs and Electronic Markets

$ E −C %
=E ד
C % −E

2 × (E −C % )
$ =“
2 × (C % −E )

‘ + S
where:
C % =
2

t E t −C %
=E ד
C % −E t

Learning Module 7: Case Study in Portfolio Management: Institutional (SWF)

No formula.

16
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

VOLUME 3 – PERFORMANCE MEASUREMENT

Learning Module 1: Portfolio Performance Evaluation

ℎ ^ =F−‘

F−‘
^ =
1+‘

Attribution based on Factor Models

F =F +"

F − ‘ = f9g*,K − g†,K > × iK + "

g*,K = Sensitivity of the portfolio to the given factor

where:

g†,K = Sensitivity of the benchmark to the given factor

iK = Factor return

Micro and Macro Return Attribution

0 0 0

F−‘ =f K + f "K + f DK
Kj_ Kj_ Kj_

K = Weight of asset
where:

tK = Weight of asset
in portfolio

FK = Return of asset
in benchmark

‘K = Return of asset
in portfolio
in benchmark

Video: https://youtu.be/yrzTVlfqloM

Brinson-Fachler Model

Allocation effect: K =( K − tK )(‘K − ‘)

Selection effect: "K = tK (FK − ‘K )

Interaction effect: DK = ( K − tK )(FK − ‘K )

17
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Brinson-Hood-Beebower Model (BHB)

Allocation effect: K =( K − tK )‘K

Selection effect: "K = tK (FK − ‘K )

Interaction effect: DK = ( K − tK )(FK − ‘K )

Decomposing Portfolio Returns

=C+"+

= Portfolio return
where:

C = Market index return

‘ = Benchmark return
" = ‘ − C = Style return (Misfit active return)
= − ‘ = Active return (True active return)

Performance Appraisal

Fx −
Sharpe Ratio

"ℎ =
\
Ox

Fx = Portfolio return
where:

\ = Risk-free rate
Ox = Portfolio standard deviation

Fx −
Treynor Ratio

E =
\
gx

Fx = Portfolio return
where:

\ = Risk-free rate
gx = Portfolio beta (Systematic risk)

18
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Fx − F†
Information Ratio

D =
OV{ cV”

Fx = Portfolio return
where:

F† = Benchmark return
OV{ cV” = Active risk (Tracking risk/Tracking error)

e
(E ‘ S )=
Appraisal Ratio

O•

O• = Standard error of regression (from factor model)

where:

= –O*d − gKd ONd

e = FK − —F\ + gK 9FN − F\ >˜

Fx − Ž
Sortino Ratio

" =
O.‰™0wK=

Ž = Investor’s minimum acceptable return/target return

where:

1
b

O.‰™0wK= = š f min( − Ž , 0)
d
Z
j_

u &
Capture Ratio

& F =
&

Fl
u & = F† ≥ 0
F†
Fl
& = F† < 0
F†

Fl = Manager’s return
where:

F† = Benchmark return

19
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

( , ) − ( , ∗)
Maximum Drawdown

C ^ = min ž• • , 0Ÿ
( , ∗)

( , ) = portfolio value of manager at time

where:

( , ∗ ) = peak portfolio value of manager

> ∗

Video: https://youtu.be/0tRDDT9E9AU

Learning Module 2: Investment Manager Selection

Performance-Based Fees

If manager is fully exposed to upside and downside:

Computed fee = Base fee + Sharing of performance

If manager not exposed to downside:

Computed fee = Higher of either [1] Base fee, OR

[2] Base fee plus sharing of positive performance

If manager is not exposed to downside, and there is a maximum fee.

Computed fee = Higher of either [1] Base fee, OR

[2] Base fee plus sharing of performance, to a
maximum fee

20
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Learning Module 3: Overview of the Global Investment Performance Standards

= 91 + ,_ > × 91 + ,d > × … × 91 + ,0 > −1

Time-weighted return
™2

,_ through ,0 = Sub-period returns

− • − &i
Modified Dietz method

=
_

• + ∑Kj_(&iK × K)
N‰=.K ¨ 0

Video: https://youtu.be/guZWVXirJL0

0
Modified IRR method

_ = f‹&iK × (1 + CDFF)™ª Œ + • (1 + CDFF)

Kj_

K = Proportion of period (in days) that each cash flow has been in the portfolio
where:

& − K
=
&
& = Total number of calendar days in the period
K = Number of calendar days from the beginning of the period to the time cash flow &iK

0
occurs

&i = f &iK
Kj_

Composite Time-Weighted Return

0
Asset-weight individual portfolio returns using beginning-of-period values

= f ×
•,xK
ƒ xK
∑0xKj_ •,xK
xKj_

ƒ = Composite return
where:

xK = Return of an individual portfolio

•,xK = Beginning value of portfolio

∑0xKj_ •,xK = Total beginning fair value of all individual portfolios in the composite

21
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

0
Use a method that reflects both beginning-of-period values and external cash flows

= f ×
xK
ƒ xK
∑xKj_ xK
0
xKj_

xK = Beginning value of portfolio + Weighted external cash flows

where:

∑0xKj_ xK = Total beginning fair value and weighted external cash flows of all individual
portfolios in the composite

− • − &i
Aggregate Return Method

=
_

• + ∑Kj_(&iK × K)
N‰=.K ¨ 0

_ = Ending value of composite

where:

• = Beginning value of composite

0
E ^
&i = = f &iK
ℎ
Kj_
0 0
E «¬-®¯°¬± ^
f(&iK × K) = = f
ℎ xK
Kj_ xKj_

Equal-weighted standard deviation Asset-weighted standard deviation

∑0Kj_( K − ²̅ )d 0
"² = ³
"²,3™ = šf ̅
× 9 K − x2‰aµ >
d
K
Kj_

̅ = asset-weighted mean return

where:

= return for portfolio

x2‰aµ
= ∑0Kj_ K × K
K

²̅ = equal-weighted mean = weight of portfolio = ¶

¶·,ª
K
·,¸¹,º»

= number of portfolios in composite

22
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

VOLUME 4 – DERIVATIVES AND RISK MANAGEMENT

Learning Module 1: Option Strategies

B
Put-call parity

"• + = +
• •
(1 + )Ž

i• B
Put-call-forward parity

+ = +
(1 + )Ž • •
(1 + )Ž

i• − B
Synthetic long forward

− =
• •
(1 + )Ž

Option premium = Time value + Intrinsic value

$^ = "Ž − C ^("Ž − B, 0)
Covered Calls Video: https://youtu.be/2SocH6PqhOk

$^ = "Ž − C ^("Ž − B, 0) + • − "•

C ^ = B − "• + •
C ^ = "• − •
‘ S = "• − •

=" S −& = 1 − Δ²344

=" S −& = −Gamma²344 < 0
=" S −& = −Vega²344 < 0
ℎ = " S Eℎ − & Eℎ = −Theta²344 < 0

$^ = "Ž + C ^(B − "Ž , 0)

Protective Puts Video: https://youtu.be/VLK1lXbXtRk

$^ = "Ž + C ^(B − "Ž , 0) − "• − •

C ^ =∞
C ^ = "• − B + •
‘ S = "• + •

=" S + = 1 + Δx1
=" S + = Gammax1 > 0
=" S + = Vegax1 > 0
ℎ = " S Eℎ + Eℎ = Thetax1 < 0

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CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

$^ = C ^("Ž − Bv , 0) − C ^("Ž − BÂ , 0)
Call Bull Spread Video: https://youtu.be/3NHweIzEU0k

$^ = C ^("Ž − Bv , 0) − C ^("Ž − BÂ , 0) − ( v − Â )
C ^ = BÂ − Bv − ( v − Â )
C ^ = v− Â
‘ S = Bv + v − Â

$^ = C ^(Bv − "Ž , 0) − C ^(BÂ − "Ž , 0)

Put Bull Spread Video: https://youtu.be/Lf1Fi-zy7w4

$^ = C ^(Bv − "Ž , 0) − C ^(BÂ − "Ž , 0) − ( v − Â )

C ^ = Â− v
C ^ = BÂ − Bv + v − Â
‘ S = BÂ + v − Â

$^ = C ^(BÂ − "Ž , 0) − C ^(Bv − "Ž , 0)

Put Bear Spread Video: https://youtu.be/eTejezNXZbU

$^ = C ^(BÂ − "Ž , 0) − C ^(Bv − "Ž , 0) − ( Â − v )

C ^ = BÂ − Bv − ( Â − v )
C ^ = Â− v
‘ S = BÂ − Â + v

$^ = C ^("Ž − BÂ , 0) − C ^("Ž − Bv , 0)
Call Bear Spread

$^ = C ^("Ž − BÂ , 0) − C ^("Ž − Bv , 0) − ( Â − v)
C ^ = v− Â
C ^ = BÂ − Bv + Â − v
‘ S = Bv + v − Â

$^ = C ^("Ž − B, 0) + C ^(B − "Ž , 0)

Straddle Video: https://youtu.be/oDklmeMTnCg

$^ = C ^("Ž − B, 0) + C ^(B − "Ž , 0) − • − •

∞ "Ž > B
C ^ =“
B − "Ž − • − • "Ž < B
C ^ = •+ •
‘ S = B ± ( • + •)

24
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Note: Bv < "• < BÂ

Collar Video: https://youtu.be/LkS_sxmg2cs

$^ = "Ž + C ^(Bv − "Ž , 0) − C ^("Ž − BÂ , 0)

$^ = "Ž + C ^(Bv − "Ž , 0) − C ^("Ž − BÂ , 0) − "• − • + •
C ^ = BÂ − "• − • + •
C ^ = −Bv + "• + • − •
‘ S = "• + • − •

For zero-cost collar, • = •

Implied Volatility
For 252 trading days in a year and 21 trading days in a month:

252
O300134 = Ol‰0 Š4µ ³
21

Zx‰wK × DeltaÆÇÈÉÊÉÇË + ZŠ × =0
Delta hedging
K‰0 =@ Š =@

Video: https://youtu.be/v8RcvkQKFpw

Learning Module 2: Swaps, Forwards, and Futures Strategies

Managing Interest Rate Risk

C uFŽ − C uF*
Interest Rate Swaps

Z+ = P QC
C uF+ *

Z+ = Swap notional principal

C uFŽ = Target modified duration
C uF* = Modified duration of portfolio
C uF+ = Modified duration of swap
C * = Market value of portfolio

Note: Modified duration of cash = 0 (unless stated otherwise in case)

Money Market Instrument

‘ =i × × 0.01%
360

25
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

$ = 100 −
Interest Rate Futures

i &
Treasury Futures

= × ×&
100 i

Basis Point Value Hedge Ratio (BPVHR)

‘ −‘
‘ yF = P Q×& i
Ž *
‘ ƒŽ.

‘ Ž= C uFŽ × 0.01% × C *
‘ * = C uF* × 0.01% × C *
‘ ƒŽ. = C uFƒŽ. × 0.01% × C ƒŽ.
&E
C ƒŽ. = ×i
100
‘ ƒŽ.
‘ U=
&i

F % ℎ
Hedging Currency Risk with Futures

Z\ =
&

gŽ − g+ "
Hedging Equity Risk with Futures

Z\ = ž ŸP Q
g\ i

gŽ = Target beta
where:

g+ = Portfolio beta
g\ = Futures beta
" = Portfolio market value
i = Futures price

%ΔPortfolio value
$ =
%ΔIndex value

Note: Beta of cash = 0

Video: https://youtu.be/VMVQ2GOrG0Q

26
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Od − Bd
Variance Swap

" = ž Ÿ
Ž
2B
= (O d − B d )

× (O d − B d )
=
E−
1+ ×Ò
E Ó

E−
where:

Od = × O2d 34K¨ = (0, ) + × OKlx4K

d
= ( , E)
E E

Video: https://youtu.be/YVNPCXGTdWk

Probability of a Change in Federal Funds Rate

D i −&
ℎ =
E ℎS

& =C

Fed funds futures price = 100 – Implied Fed funds rate

Learning Module 3: Currency Management An Introduction

F.ƒ = (1 + FUƒ )(1 + FU„ ) − 1

F.ƒ = Domestic-currency return

FUƒ = Foreign-currency return
FU„ = Percentage change in foreign currency against domestic currency
(currency quoted as DC/FC)

Video (Unhedged Returns): https://youtu.be/7Cycb5teSbU

O.ƒ
d
= OUƒ
d
+ OU„
d
+ 2OUƒ OU„ LUƒ,U„
Volatility of foreign asset (in domestic currency terms)

O.ƒ = OU„ (1 + FUƒ )

For a foreign-risk free asset:

27
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

= e + g^ + k
Minimum Variance Hedge Ratio

= change in value of asset to be hedged (measured in DC) = F.ƒ

where:

^ = change in value of hedging instrument (measured in DC) = FU„

& (^, ) Oµ
C yF, g= = La,µ P Q
(^) Oa

28
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

PORTFOLIO MANAGEMENT PATHWAY

Learning Module 1: Index-Based Equity Strategies

& t ℎ F
Attribution Analysis
= ×

& t ℎ F
= ×
ℎ S ℎ S

Learning Module 2: Active Equity Investing: Strategies

⁄$
Growth at a Reasonable Price (GARP)

$ =
( %)

Information Coefficient

Pearson IC = Correlation between factor score and subsequent month return

Spearman rank IC = Correlation between rank of factor score and rank of subsequent month
return

l
Returns-based Style Analysis

= e + f gwFw + k
wj_

= fund return within period ending at time

where:

F = return of style index in same period

w

g w = fund exposure to style (∑l wj_ g = 1; g > 0 for long-only)

w w

e = manager’s value added

k = residual return that cannot be explained by the styles used

29
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Learning Module 3: Active Equity Investing: Portfolio Construction

b
Active Return

F• = f ΔtK FK
Kj_

FK = return on security
ΔtK = active weight = txK − t†K
where:

F• = f9gx# − g}# > × i# + (e + k)

Kj_

gx# = sensitivity of portfolio ( ) to rewarded factor (S)

where:

g}# = sensitivity of benchmark ( ) to rewarded factor (S)

i# = return of each rewarded factor
e = active return that can be attributed to manger’s specific skill/strategies (security

k = idiosyncratic return
selection, factor timing)

C ( ℎ ," )
=
ℎ

$(F• ) = D& × √‘F × OVÔ × E&

Fundamental Law of Active Management

D& = Information coefficient

where:

‘F = Breadth (Number of independent decisions made per year)

E& = Transfer coefficient (Unconstrained portfolio  TC = 1)
OVÔ = Manager’s active risk

1
0

"ℎ = fÕ − †,K Õ
2 x,K
Kj_

where: = number of securities in either portfolio or benchmark

∑Žj_(F• )d
F S E S $ , OVÔ =³
E−1

30
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway
b

OVdÔ = O Öf9gx# − g}# > × i# × + O•d

d

Kj_

O Öf9gx# − g}# > × i# × =

d
^
Kj_
O•d = Variance attributed to idiosyncratic risk

Absolute Risk Attribution Video: https://youtu.be/zpk24jsMGDM

0 0

x = f f ^K ^n &Kn
Kj_ nj_

& K = f ^K ^n &Kn = ^K &Kx

nj_

x = Portfolio variance
where:

& K = Contribution of asset to portfolio variance

^K = weight of asset in portfolio
&Kn = Covariance of returns between asset and Ø
&Kx = Covariance of returns between asset and portfolio

Relative Risk Attribution

0 0

x = f f(^K − K )(^n − n )F&Kn

Kj_ nj_

& K = f(^K − K )(^n − n )&Kn = (^K − K )F&Kx

nj_

x = Variance of portfolio’s active return

where:

& K = Contribution of asset to portfolio active variance

K = benchmark weight in asset
F&Kn = Covariance of relative returns between asset and Ø
&Kx = Covariance of returns between asset and portfolio

31
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

1
Compounded Return (Geometric Return)

F@ = S × F3 − (S − 1)F= − (S × O)d
2

F@ = Compounded/geometric return
F3 = Arithmetic/periodic return
S = Leverage factor = ⁄$%
F= = Cost of funding leverage

Gross and Net Exposure

$^ =] + |"ℎ |

Z $^ =] − |"ℎ |

Learning Module 4: Liability-Driven and Index-Based Strategies

b
Macaulay Duration, Dispersion, and Convexity

C =f K ×
j_

=
K
K

Note: To annualize MacDur, divide by periodicity.

=f K ×( −C )d
j_

1
b

& ^ = f × ( + 1)
(1 + & ℎ )d K
j_

Note: To annualize dispersion and convexity, divide by periodicity squared.

C +C
d
+
& ^ =
(1 + & ℎ )d

Video: https://youtu.be/qeky-p7Hljw

32
CFA Level 3 (2025) Formula Sheet by Fabian Moa

C
Portfolio Management Pathway

C =
1+& ℎ

C =C S ×C

‘ =C S ×C × 0.0001

Note: For zero-coupon bonds, Macaulay duration = Maturity

Number of bond futures contracts required to close the duration gap

] ‘ − ‘
Z\ =
i ‘

‘ ƒŽ.
where:

i ‘ ≈
&iƒŽ.

= ‘ −] ‘

Video (Derivatives overlay with futures): https://youtu.be/3ZlCA1nP8Zc

Video (Contingent immunization): https://youtu.be/bL9P0j5LNJk

] ‘ − ‘
Required Swap Notional to close the duration gap

Z =
" ‘ ⁄100

Note: Swap BPV quoted per $100 notional

Video: https://youtu.be/LGsJEXCYH0g

Δ y Δy ] Δ]
× + × = ×
‘ ‘ ‘

33
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Learning Module 5: Yield Curve Strategies

: ] "ℎ
= −

‘ "ℎ C ]
=− +2× −

1
%ΔPVU144 = −(C × Δ: )+ ×& ^ × (Δ: )d
2
= %ΔPVU144 × U144

Repo carry return = Coupon income ± Rolldown Return − Financing cost

Repo carry trade

E F = %Δi −C
Long futures position

Video: https://youtu.be/EB9l0JwmzRA

E F = (" − CFF) + %Δ" S S

Receive-fixed interest rate swap

1 Δ
Key Rate Duration

o F = ×
#
Δ #

Learning Module 6: Fixed Income Active Management: Credit Strategies

& " = [ ×]

: :EC :EC
= −
ℎ S

:EC :EC
-" = −
:EC "
D-" = −

, "t = ‘ −"

34
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Discount margin (DM) for floating-rate notes

(CFF + ÜC) × i (CFF + ÜC) × i (CFF + ÜC) × i

Û Ý Û Ý Û Ý+i
= + + ⋯+
CFF + C _
CFF + C d
CFF + C 0
Ò1 + Ó Ò1 + Ó Ò1 + Ó

ÜC = Quoted margin
C = Discount margin
= Periodicity
= Tenor of FRN
CFF = Market reference rate (assume constant)
i = Face value

C K
b

[ "=f × [ "K C =C S
C
Kj_

E "% , E" = " ×"

C K
b

E" = f × (" ×" K)

C K
Kj_

$ ℎ ( )=− E" × %Δ"

Impact of Yield Spreads on Portfolio Return

1
%Δ +x2 3=
≈ −$ " × Δ" + ×$ " & × (Δ" )d
2

( c) − ( `)
$ " =
2 × (Δ" )× •
( c ) + ( ` ) − 2( •)
$ " & =
(Δ" )d × •

35
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Excess return on credit risky bond

$($^ " ) ≈ (" • × ) − ($ " × ß" )−( × [ ×] )

" • = Initial yield spread per annum

where:

Δ" = Change in spread over holding period

[ = Annualized expected probability of default
] = Expected loss severity
[ ×] = expected annual credit loss
= Holding period (in years)

Video: https://youtu.be/U1C5_eNFMBA

Floating-rate Note (FRN)

( c) − ( `)
Effective rate duration

$ F =
UVb
2 × (ΔCFF) × •

( c) − ( ` )
Effective spread duration

$ " =
UVb
2 × (Δ C) × •

Expected change in YTM based on a &% confidence interval over one month

Z
= Daily interest rate volatility × ³ ×à
ℎ

Credit Default Swap (CDS)

& " ≈ 1 + ‹(i ^ & −& "" )×$ " ƒ.+ Œ

For a $1 notional:

u = (i ^ −& " )×$ " ƒ.+

%Δ& " ≈ −Δ(& " " )×$ " ƒ.+

Δ& " ≈& "Z × %Δ& "

Note:
• Buy protection  CDS Notional < 0 (Short risk position)
• Sell protection  CDS Notional > 0 (Long risk position)

36
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Learning Module 7: Trade Strategy and Execution

D" = −
Implementation Shortfall

=( 0 − = )"

= Òf n Ó 0 −f n n −i
E = = ×"

D" = $^ +[ +i

$^ =f n n − Òf n Ó =

[ = Ò" − f n Ó ( 0 − =)

$^ D" = +E +[ +i

= Òf n Ó • − Òf n Ó =

E =f n n − Òf n Ó •

0 = Current price
where:

= = Decision price (Benchmark price)

• = Arrival price
" = Total order of shares (" > 0 for buy order; " < 0 for sell order)
n = Number of shares executed in Øth trade

n = Transaction price of Øth trade

∑ n = Total number of shares executed

Video (Buy order): https://youtu.be/xScTmNIylRQ

Video (Sell order): https://youtu.be/ssHM84hU3iw

37
CFA Level 3 (2025) Formula Sheet by Fabian Moa
Portfolio Management Pathway

Trade Evaluation

+1 ‘ â = Average execution price

" =á
−1 "

â−
( )=" × × 10,000

â− t
t ( )=" × × 10,000
t
â − Et
Et ( )=" × × 10,000
Et
â−&
& ( )=" × × 10,000
&
C S Ø ( )= ( )−g×D ^ ( )

D ^ t −D ^
where:

D ^ ( )=" × × 10,000
D ^

( )= ( )−$ ( )

Learning Module 8: Case Study in Portfolio Management: Institutional

Total levered cost = Unlevered cost + Additional cost of obtaining leverage

1
= P1 − Qב
$Ei ]

1
= P1 − Q×[
i ]

1
= P1 − Q×[
" ]

38