Portfolio and Risk Management

In this introductory week, you will first be presented with a few mistakes you will no longer make after following this course. In order to avoid making these mistakes, you will start by gaining a foundation and understanding of the three main types of information we need in order to build optimal portfolios: expected returns, risk and dependence.

The focus of this second week is on Modern Portfolio Theory. By understanding how imperfect correlations between asset returns can lead to superior risk-adjusted portfolio returns, we will soon be looking for ways to maximize the effect of diversification, which is at the heart of Modern Portfolio Theory. We will also explore the implications of Modern Portfolio Theory on real-world investment decisions and whether or not these implications are followed by investors.

This third week is dedicated to asset allocation. After a short introduction to investor profiling, we will delve into Strategic Asset Allocation (SAA). You will see how it relates to Modern Portfolio Theory and how it differs from Tactical Asset Allocation (TAA). We will look at how both asset allocations can be implemented separately but also in conjunction in order to build portfolios that fulfill investors' needs and constraints.

This fourth and final week is dedicated to risk. We will start by looking in more depth at different sources of risk such as illiquidity and currency risk but also at the different tools available to investors to perform risk management. We will learn about Value-at-Risk and Expected Shortfall which focus on potential large losses, and use financial instruments to hedge market and currency risk.