Portfolio Design Concepts

This course serves as a robust introduction to modern portfolio design techniques. It begins with basic risk and return quantification techniques. It goes on to examine the concepts of alpha and beta and the Capital Asset Pricing Model. Finally it covers two key portfolio design techniques: Markowitz optimal portfolio design and arbitrage pricing theory. The course also addresses modern performance evaluation methods.

Course Outline

  • Measuring Risk and Return
    • The quantitative measurement of risk and return
    • Return distributions and volatility analysis
    • Risk adjusted returns and the Sharpe Ratio
    • Exercises
  • Correlation, Alpha and Beta
    • Measuring and interpreting correlation
    • Comprehensive coverage of alpha and beta including interpretation and measurement
    • How to measure alpha and beta from performance data
    • Mutli factor beta analysis
    • Exercises
  • Capital Asset Pricing Model
    • The Efficient Market Hypothesis
    • Intuition and theoretical derivation
    • Risk and return trade-off in CAPM
    • Applications of CAPM
    • Empirical evidence on CAPM
    • Extensions of CAPM
  • Markowitz approach to asset allocation
    • Mean-variance optimization
    • Flaws and risks of the Markowitz approach
    • Exercises and case studies
  • Arbitrage Pricing Theory
    • Assumptions and underlying theory
    • Factor analysis
    • Case Study: The Fama-French model
    • Exercises
  • Performance Evaluation Measures
    • The Sharpe ratio revisited
    • Uses and abuses of risk parameters
    • Exercises

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