Module 2 - Quantitative Risk & Return

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This module deals with the classical portfolio theory of Markowitz, the capital asset pricing model and more recent developments extending from these theories. You will learn key concepts related to risk and return and the application of risk management metrics such as VaR. 

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Sections

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Risk Regulation and Basel III

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

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Value at Risk & Expected Shortfall

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  • Measuring Risk
  • VaR and Stressed VaR
  • Expected Shortfall and Liquidity Horizons
  • Correlation Everywhere
  • Frontiers: Extreme Value Theory
     

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Portfolio Management

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  • 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

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Fundamentals of Optimization and Application to Portfolio Selection

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

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Asset Returns: Key, Empirical Stylised Facts

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

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Volatility Models: The ARCH Framework

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  • Why ARCH models are popular?
  • The original GARCH model 
  • What makes a model an ARCH model?
  • Asymmetric ARCH models 
  • Econometric methods
     

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Liquidity Asset Liability Management

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  • Gap analysis, of assets, liabilities and contingencies, both static and dynamic
  • The role of derivative and non-derivative instruments in liquidity
  • Liquidity Coverage Ratio (LCR)
  • Net Stable Funding Rate (NSFR)

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Collateral and Margins

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  • Expected Exposure (EE) profiles for various types of instruments
  • Types of Collateral
  • Calculation Initial and Variation Margins
  • Minimum transfer amount (MTA)
  • ISDA / CSA documentation

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Lecture order and content may occasionally change due to circumstances beyond our control. However, this will never affect the quality of the program.

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Building Blocks of Quantitative Finance
Equities & Currencies