Introductory description

The objective of this module is to provide an in-depth introduction into the theory and practical applications of Asset Management and Risk Management.

Module aims

Outline syllabus

This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.

The following is a preliminary list of topics covered in this module.
Financial Markets and Instruments: markets and instruments, asset classes money markets (T-bills, CDs, commercial paper, LIBOR, etc.) capital markets (equity, sovereign and corporate bonds, asset-backed debt, preferred and common stock) investment companies mechanics of trading.
Portfolio Theory: risk, return, investor preferences and risk premium diversification optimal asset allocation.
Asset Pricing Models: Capital Asset Pricing Model; multifactor models; market efficiency; behavioral finance.
Security Valuation: valuation of debt instruments; valuation of stocks.
Risk Management: types of risk; risk management tools; interest rate risk (duration, gap management, caps/floors, swaps); measuring and managing market risk (VaR); international investing; forwards and futures options.
Active Investment Management: portfolio performance measurement and attribution; active management (the ‘Search for Alpha’).

Learning outcomes

By the end of the module, students should be able to:

• Understand the characteristics of different classes of financial securities and the mechanics of the markets in which these securities are traded.
• Understand the basic valuation techniques for cash instruments such as equities and bonds and derivative securities such as options and futures.
• Understand the various types of risk an investor or corporation is exposed to, and the reasons why it is important to actively manage these risks.
• Understand the measurement of risk using VaR and other methods.
• Understand derivative securities to manage various types of risk.
• Understand the benefits and risk of investing internationally.
• Understand how to evaluate the performance of active investment strategies.
• Demonstrate an ability to acquire and analyse data and information, to evaluate its relevance and validity, and to synthesise a range of information in the context of new situations.
• Demonstrate a critical application of relevant knowledge to a range of complex situations taking account of their relationship and interaction with other areas of the business or organization.
• Reflect on and learn from prior experience and thus be able to integrate new knowledge with past experience and apply it to new situations.
• Demonstrate strengths in analysing, synthesising and solving complex unstructured business problems.

Indicative reading list

The core textbooks for this module are:
Bodie, Z.; Kane, A. and Marcus, A.J. (2012) Essentials of Investments (9th edition) Maidenhead, Berks: McGraw-Hill Irwin.
OR
Bodie, Z.; Kane, A. and Marcus, A.J. (2011) Investments and Portfolio Management (9th edition) Maidenhead, Berks: McGraw-Hill Irwin.
Other texts include:
Peterson, S. (2012) Investment Theory & Risk Management Hoboken: Wiley
Jordan, B.; Miller, T and Dolvin, S. (2011); ‘Bumpy Market Reminds Investors to Assess their Risk Tolerance’; in Fundamentals of Investments (6th edn) Maidenhead, Berks: McGraw-Hill.
Bodie, Z. and Meron, R.C. (2000); ‘The Time Value of Money and Discounted Cash Flow Analysis’ in Finance. London: Prentice Hall.
Harvard Management Company (2001) ECCH: 9-201-129.
Introduction to Portfolio Theory ECCH: 9-185-066.
Geer, C.T. (2012) ‘How Much Risk Can you Manage’ Wall Street Journal, 18 March.
Thaler, R.H. (2011) ‘Deer in the Headlights, Financially Speaking’ The New York Times, 19 October.
Sullivan, P. (2011) ‘Hidden Dangers in Safe Havens’ The New York Times, 20 August.
Bernard, T.S. (2012) ‘When ‘For Richer or Poorer’ is Put to the Test’ The New York Times, 31 March.
Economist (2013) The Economist valuables index: Fruits of Passion. August 17.
Economist (2013) Leaders: The rise of BlackRock. December 7.
Dimensional Fund Advisors, 2002 ECCH: 9-203-026.
Sullivan, P. (2012) ‘A Forecast for Low Returns and Advise for Investors’ The New York Times, 17 March.
Lieber, R. (2011) ‘Crises Reach Across Borders: Resisting the Urge to Run Away From Home’ The New York Times, 6 August.
Bernard, T.S. (2012) ‘Why Panic? A Couple’s Nest Egg Better Left Alone’ The New York Times, 22 March.
Blumenthal, K. (2012) ‘Guide to Starting Fresh: Four Really Costly Myths about Credit Cards’ Wall Street Journal, 18 March.
Bernard, T.S. (2012) ‘Portfolio a little Off Kilter? Could be Time to Rebalance it’ The New York Times, 24 March.
The Economist (2013) ‘Home on the Range: Buttonwood’ 26 January.
The Economist (2013) ‘Beware of the Bias: Buttonwood’ 9 February.
The Economist (2013) ‘Home Truths: Global House Prices’ 12 January.
Numeric Investors ECCH: 9-298-012.
Sommer, J. (2009) ‘In this 10 Year Bond Race, Bonds Win by a Mile’ The New York Times, 25 October.
Sullivan, P. (2012) ‘Want an Active Investment Manager, Here’s What to Look For’ The New York Times, 31 March.
The Economist (2013) ‘The Best, The Worst and the Ugly: Buttonwood’ 12 January.
The Economist (2013) ‘Commerce and Conscience: Social-impact Bonds’ 23 February.
Economist (2013) Free exchange: Methods for all moments. October 19.
Economist (2013) Buttonwood: When investors make irrational decisions. October 12.
Economist (2013) “Quant” hedge funds: Computer says no.
Walt Disney Company’s Yen Financing ECCH: 9-287-058.
Teaching Note on Foreign Currency Swaps ECCH: 9-292-043.
Arends, B. (2012) ‘Emerging Markets – It’s a Jungle Out There’ Wall Street Journal, 18 March.
Sommer, J. (2012) ‘Stocks and the Economy Singing Different’ The New York Times, 22 April.
Economist (2013) Twitter’s IPO: Going cheap? November 2, 2013.
Economist (2013) Buttonwood: American corporate profits seem to have defied gravity. November 2, 2013.
Morgenson, G. (2012) ‘Anger at Goldman Still Simmers’ The New York Times, 25 March.
Goldman Sachs’ Response to March 25, 2012 New York Times Article ‘Anger at Goldman Still Simmers’.
Bodie, Z and Taqqu, R. (2012) ‘Why Stocks are Riskier Than You Think’ Wall Street Journal, 12 March.
The Economist (2013) ‘Derivatiff: Interest-rate Swaps in India’. 16 February.

Subject specific skills

Understand the trade-off between risk and expected return, and be able to form a portfolio by mixing a given fund with cash to achieve a given risk target.
Understand the concept of diversification, and be able to form a portfolio with an optimal risk return trade-off from a given set of base assets.
Be able to implement different measures of portfolio performance, and understand their respective strengths and limitations.

Transferable skills

All key skills will be covered in this module (written and oral communication, working with others, IT, problem solving, numeracy, personal effectiveness and change management).