Portfolio Management

Course Description

This course explores the theory and practice of investments, covering the topic areas of capital market structure, valuation, security analysis and portfolio management. The roles of computer technology and electronic trading are also investigated. This course will emphasize an understanding of the economic forces that influence the pricing of financial assets. Understanding of investment theory will be stressed and tied in with discussion of applicable techniques such as portfolio selection. Although the course material will cover formulae that can be applied in different business situations, a primary objective of this course will be to learn the concepts behind the formulae. Simple memorization of formulae is meaningless -- in this age of computers, simple computation of formulae is increasingly automated. The added value that a human being brings to a work situation is the ability to impose structure on the situation and to analyze the situation.

Course Contents

• Introduction to Investment Management.
• Institutional overview of the investment management industry.
• Why asset allocation matters.
• Performance of asset classes.
• Choosing an optimal portfolio.
• Safety first selection criteria.
• Focus on liabilities: Optimization in the surplus framework.
• Factor models and methods.
• Arbitrage Pricing Theory & practice.
• Who put the A in the APT?
• Building Equity Portfolios: Value, Size and Momentum-based equity strategies.
• Behavioral Finance: Psychological foundations, financial implications, relationship to asset pricing models.
• Current applications.
• Timing and selection models.
• Efficient markets and arbitrageurs.
• The rise and fall of the efficient market theory.
• Performance Evaluation Basics: Alphas, Sharpe measures, Treynor ratios, Information ratios, how to detect timing skill: Henriksson-Merton, Treynor-Mazuy and Grinblatt and Titman.
• Mutual Funds and Manager Styles
• Managing bond portfolios.
• Yield curve theories, cash flow risk and basic bond mathematics.
• Mortgage backed securities.
• Pass throughs, CMO's, IO's and PO's.
• Simulation beyond optimization.
• Bootstrapping methods and after tax forecasting.
• Value at Risk.
• Simulating risk exposure.
• Stochastic dominance a useful obsession.
• Options.
• No arbitrage foundation.
• Binomial models
• Futures markets & other derivatives.
• Building better baskets.
• What about the time value of money?