DESCRIPTION

This course provides an operational knowledge of applied investment management. The key concepts are: (a) quantifying the expected return/risk properties of different investment alternatives, (b) deciding allocations among the available alternatives, and (c) evaluating investment performance. Exchange-traded products (ETPs) are used to represent the available investment opportunity set for two reasons. First, ETPs on every asset class are now actively traded. This means we have rich and meaningful price histories with which to use in our empirical analyses. Second, ETPs have a variety of linear and non-linear payoff structures that mimic inaccessible OTC investments (e.g., hedge funds). The problems addressed in this course are those faced by the managers of pension funds, endowments, private wealth accounts, mutual funds, and hedge funds, as well as individual investors/savers. 

PREREQUISITES

Sound investment and risk management is necessarily quantitative. In practice, the key tools are statistics, regression analysis, optimization techniques, and Monte Carlo simulation. Since this course is an advanced elective, you are assumed to have a basic understanding of the application of statistics and regression to finance-related models/problems and an ability to use the relevant statistical functions in Microsoft Excel. To assist you in your preparation for the course, reviews  of elementary statistics and regression analysis are provided.

 

REQUIRED READINGS AND EXPECTATIONS

Required readings and course notes are available by clicking the appropriate links below. I expect you to read these materials before the classroom discussion. The classroom sessions are intended for reviewing and summarizing the scheduled materials, expanding the application of the analysis tools, and discussing current events. Please stay current on happenings in the marketplace through newspapers such as The Wall Street Journal and the Financial Times, and financial news shows. If you find a current issue interesting and relevant to course content, please email it to me, and I will try to integrate it into class discussion.

 

COURSE OVERVIEW

Lecture notes

  • Slides

Readings

Support files

  • Portfolio decisions.xlsx

  • Endowment data.xlsx

RETURN/RISK MEASUREMENT

Sensible investment portfolio decision-making is not possible without accurate measurement of the expected security return and risk.

 

Lecture notes

  • Slides

Readings

Support files

  • Portfolio decisions.xlsx

  • Endowment data.xlsx

Applied Investment Management

PORTFOLIO DECISION-MAKING

With accurate estimates of expected return, risk, and correlations, investment portfolio decision-making involves balancing expected return and risk in a manner that puts stakeholders in the best position possible.

Lecture notes

  • Slides

Readings

Support files

  • Portfolio decisions.xlsx

  • Endowment data.xlsx

1st GENERATION: SECURITY PORTFOLIO PRODUCTS

Lecture notes

  • General framework

  • Stock products

    • Major stock indexes​

    • Tracking error analysis

    • Sector indexes

  • Bond products

    • Government bond indexes​

    • Corporate bond indexes

  • Physical commodity indexes

Readings

Support files

  • VIX allocation decisions.xlsx

  • VIX analysis.xlsx

2nd GENERATION: FULLY COLLATERALIZED FUTURES PRODUCTS

Lecture notes

  • General framework

  • Commodity products

  • Volatility products

Readings

Support files

  • VIX allocation decisions.xlsx

  • VIX analysis.xlsx

3rd GENERATION: LEVERED AND INVERSE PRODUCTS

Lecture notes

  • Slides

Readings

Support files

  • VIX allocation decisions.xlsx

  • VIX analysis.xlsx

4th GENERATION: NON-LINEAR PAYOFF PRODUCTS

Lecture notes

  • Slides

Readings

Support files

  • VIX allocation decisions.xlsx

  • VIX analysis.xlsx

5th GENERATION: ACTIVELY-MANAGED PRODUCTS

Lecture notes

  • Slides

Readings

Support files

  • VIX allocation decisions.xlsx

  • VIX analysis.xlsx

©2020 by Robert E. Whaley.