Module 2 - Quantitative Risk & Return

In module two, you will learn about the classical portfolio theory of Markowitz, the capital asset pricing model and recent developments of these theories. We will investigate quantitative risk and return, looking at econometric models such as the ARCH framework and risk management metrics such as VaR and how they are used in the industry.

Portfolio Management
  • Measuring risk and return
  • Benefits of diversification
  • Modern Portfolio Theory and the Capital Asset Pricing Model
  • The efficient frontier
  • Optimizing your portfolio
  • How to analyze 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
Value at Risk and Expected Shortfall
  • Measuring Risk
  • VaR and Stressed VaR
  • Expected Shortfall and Liquidity Horizons
  • Correlation Everywhere
  • Frontiers: Extreme Value Theory
     
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
     
Risk Regulation and Basel III
  • Definition of capital
  • Evolution of Basel
  • Basel III and market risk
  • Key provisions
Collateral and Margins
  • Expected Exposure (EE) profiles for various types of instruments
  • Types of Collateral
  • Calculation Initial and Variation Margins
  • Minimum transfer amount (MTA)
  • ISDA / CSA documentation

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
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Equities & Currencies