Relative value models

[derswap07]

For FEd model, the denominator is S& P 500 yield ( meaning E1/P0)
for Yardani model, is it the same ??

 

[pokhim]

yes and the numerator incorporates the A’rated corp bond yeild

 

[derswap07]

numerator or denominator?

 

[pokhim]

i normally use it like this:
E1/Po - (Yb - dLTEG) < 0 then over valueed
E1/Po - (Yb - dLTEG) > 0 then under valued

 

[derswap07]

Si isn’t the first part E1/P0 = S&P earning yield- which is in the numerator in the FED model also ?
I’m totally confused here.

 

[Cubemonkey]

Both Yardeni and Fed model compare vs. E1/P0. You can check this in the 2013 AM session available via the CFA site. There’s a problem in there about Yardeni and Fed.