Laurent Deville
Research Fellow - Business School Associate Professor, CNRS - EDHEC
Aymeric Kalife
Head of Unit-Linked Guaranteed Products, AXA Group Autres cours :
Gideon Ozik
Head of Investment Solutions, Nexar CapitalGestion de Portefeuille Avancée
Les objectifs du cours
The objectives of this course are to present a number of advanced methods in applied portfolio management. This course is divided into 3 parts. The first one is dedicated to recent problems in portfolio management (18h). The other two parts are focusing on fixed income (12h) and derivatives (18h) to present a number of advanced trading, investing and hedging strategies and to give a good understanding of how to effectively implement these strategies in practice.
Part 1 : Advanced portfolio management
The purpose of this part is to challenge students to understand and then fully implement quantitative portfolio management techniques. Students will take a few classic quant models (e.g., “momentum”) to the data and empirically evaluate their merits. Students will also come up with their own new or extended models and back-test them empirically.
Part 2 : Fixed Income Securities Portfolio Management
After a brief review of yield curve analysis, portfolio risk and performance measures, we explain how bonds, futures and other derivative instruments can be used to ensure Portfolio immunization with respect to interest rates risks. We then shift to investment portfolio strategies, from passive (benchmark-tracking) to active interest rates portfolio management. We finally demonstrate how different views about the level and shape of the yield curve can be exploited with selected arbitrage and relative value trades (repo trading, yield spread trades, flatteners/steepeners, barbell/bullets, butterfly trades, etc.) We also show how futures/options/swaps can be used effectively to implement “Directional” and “Volatility” bets or “Sector Switching”.
The class uses MS Excel Spreadsheet applications and Visual Basic extensively, involving the use of market data and Fixed Income Market Research publications.
Part 3: Options Trading Strategies
This course focuses on topics associated with the uses and applications of derivatives. Emphasis will be on derivatives strategies, hedging derivatives and risk management with computer-based implementation in Vbasic for Excel. At the end of the class, students should be able to
- understand and manage the risks of a derivatives portfolio composed of vanilla and or exotic options
-
assess the dynamic behavior, performance and risks of hedging and investment strategies through simulation
Plan du cours
Part 1 : Advanced portfolio management
We will start by covering two recent quant research topics (6 hours): trading based on analyst recommendations and on media coverage. Students will read papers assigned prior to class. The next topic will be “momentum” (3 hours). After reading assigned papers, student will implement and back-test momentum strategies. Empirical class non-linear factors will follow (3 hours). Students will then evaluate hedge fund returns using linear as well as non-linear factors.
If time permits, we will cover advanced topics in hedge fund management.
Portfolio management - students should be familiar and comfortable with basic portfolio management concepts such as the efficient frontier and the CAPM, and multi-factor models.
Programming – the focus of the class in on empirical testing of quantitative portfolio strategies, thus students are expected to program either in matlab or any other computer language
Part 2 : Fixed Income Securities Portfolio Management
I. Portfolio Management environment
- Yield Curve analysis
- Duration, convexity and other portfolio risk measures
- Portfolio Performance measures
II. Portfolio Interest Rates Immunization
- Duration-based Portfolio Immunization strategies
-
Convexity-based Portfolio Immunization strategies
III. Portfolio Interest Rates Investment Strategies
- Passive vs Active Portfolio Investment Strategies
- Relative-value Portfolio Investment Strategies
Part 3 : Options Trading Strategies
Lecture 1: Options markets and strategies
- Types of options; positions, payoffs and P/L; underlying assets and specifications, trading
- Option strategies; basic risk management; equity-linked CDs with derivatives
Computer session 1: Empirical performance of derivatives strategies
- Readings: Bernard and Boyle (2009), “Mr. Madoff’s Amazing Returns: An Analysis of the Split-Strike Conversion Strategy”, Journal of Derivatives, Vol. 17, No. 1, pp. 62–76.
Lecture 2: Dynamic management of vanilla derivatives portfolio
Dynamic hedging of a derivatives position; delta hedging; Greek letters; dynamic portfolio insurance
Computer session 2: Greeks and the performance of delta hedging
- Readings: Figlewski (1989), “Options Arbitrage in Imperfect Markets”, Journal of Finance, pp. 1289-1311.
Lecture 3: Hedging exotic options
Types of exotic options; Greek letters and dynamic hedging of exotic options; static hedging of barrier options
Computer session 3: Dynamic vs. static hedging of barrier options
- Readings: Engelmann, Fengler, Nalholm and Schwendner, (2006), “Static versus dynamic hedges: an empirical comparison for barrier options”, Review of Derivatives Research, Vol. 9, No. 3, pp. 239-264
Bibliographie
Hull, J. (2006), Options, futures and other derivatives, 6th ed., Pearson Prentice Hall
MacDonald R. L. (2006) Derivatives Markets, 2nd ed., Addison Wesley
Riva, F. (2008) Applications financières sous Excel en Visual Basic, 3ème éd., Economica.
Examen
Homework and Final