Portfolio Analysis and Risk Management
Course objectives:
The course aims at students interested in investment decisions, portfolio theory and risk management while delving into both theoretical and empirical aspects of the topics. Topics covered include portfolio and diversification theory, equilibrium capital markets and its implications, portfolio performance measures, fixed income instruments, value-at-risk, and credit risk.
Textbooks:
The course closely follows two textbooks:
Bodie, Z., Kane, A. & Marcus, A.J. (2014): Investments (10th Ed.), McGraw-Hill (BKM)
Hull, J.C. (2015): Risk Management and Financial Institutions (4th Ed.), John Wiley & Sons (H)
Assessment:
Timing of the assignments and midterm respects the time schedule detailed in the following section:
HA #1: assigned during Week #5
HA #2: assigned during Week #11
Midterm: during Week #8
Time Schedule:
WEEK #1 INTRODUCTION
Introduction & Course information
Investment Environment
Asset Classes and Financial Instruments o Risk, Return, and Historical Record
BKM 1,2,5
WEEK #2 - #3 PORTFOLIO THEORY AND PRACTICE
Capital Allocation to Risky Assets
Optimal Risky Portfolios
Index Models
BKM 6-8
WEEK #4 - #5 EQUILIBRIUM CAPITAL MARKETS I
Capital Asset Pricing Model
Arbitrage Pricing Theory
BKM 9, 10, 13.3
HOME ASSIGNMENT #1 (DURING WEEK #5)
WEEK #6 - #7 EQUILIBRIUM CAPITAL MARKETS II
Efficient Market Hypothesis
Behavioral Finance and Technical Analysis
BKM 11,12
MIDTERM TEST (DURING WEEK #8)
WEEK #8 FIXED-INCOME SECURITIES
Managing Bond Portfolios
Bond Prices & Yields
BKM 14,16
WEEK #9 APPLIED PORTFOLIO MANAGEMENT
Portfolio Performance Evaluation
BKM 24
WEEK #10 - #11 VALUE-AT-RISK
Risk Management
Value-at-Risk
Expected Shortfall
Coherent Risk Measures of Extreme Value Theory
Back-Testing
H 12-13
HOME ASSIGNMENT #2 (DURING WEEK #11)
WEEK #12 - #13
Credit Ratings
Estimating Default Probabilities
Ratings Transition Matrices
Vasicek’s Model
CreditRisk Plus
Creditmetrics
H 19, 21