Module 2: Quantitative Risk & Return

Portfolio Management

  • Measuring risk and return
  • Benefits of diversification
  • Modern Portfolio Theory and the Capital Asset Pricing Model
  • The efficient frontier
  • Optimising your portfolio
  • How to analyse portfolio performance
  • Alphas and Betas

Fundamentals of Optimization and Application to Portfolio Selection

  • Fundamentals of portfolio optimization
  • Formulation of optimization problems
  • Solving unconstrained problems using calculus
  • Kuhn-Tucker conditions
  • Derivation of CAPM

Risk Regulation and Basel III

  • Definition of capital
  • Evolution of Basel
  • Basel III and market risk
  • Key provisions

Market Risk Measurement Methods

  • What is market risk
  • Measuring market risk exposures
  • Value at Risk - Analytical method
  • Value at Risk - Monte Carlo Method
  • Value at Risk - Historical Simulations
  • Backtesting
  • Stressed VaR

Impact of risk regulation on investment and trading

  • Fundamentals of Enterprise Risk
  • Loss Distributions and Mitigation Strategies
  • Impact of Leverage and Liquidity Rules on Asset prices
  • Impact of regulation on Q- world risk neutral traders
  • Living Wills: Dead on Arrival or Orderly Liquidation?
  • Behavioural Finance Considerations of Regulation

Asset Returns: Key, Empirical Stylised Facts

  • Volatility clustering: the concept and the evidence
  • Properties of daily asset returns
  • Properties of high-frequency returns

Volatility Models: The ARCH Framework

  • Why ARCH models are popular
  • The original GARCH model
  • What makes a model an ARCH model?
  • Asymmetric ARCH models
  • Econometric methods
Lecture order and content may occasionally change due to circumstances beyond our control; however this will never affect the quality of the program.