FN3023 Investment management
There has been a minor revision to this syllabus.
Students may bring into the examination hall their own hand held electronic calculator. If calculators are used they must satisfy the requirements listed in Section 4, Assessment for the programme, of the Detailed Regulations.
Prerequisites (applies to degree students only)
FN1024 Principles of banking and finance.
This course must be taken at the same time as, or after FN3092 Corporate finance.
The syllabus comprises the following topics:
Financial markets and instruments: money and bond markets; equity markets; derivative markets; managed funds; margin trading; regulation of markets.
History of financial markets: historical and recent financial innovation; historical equity and bond market returns; equity premium puzzle.
Fund management and investment: historical mutual fund performance; market efficiency and behavioural finance; return based trading strategies; hedge funds.
Market microstructure: types of markets; bid-ask bounce - the Roll model; Glosten-Milgrom model; Kyle model; discrete version of the Kyle model; limit order markets; statistical arbitrage (algorithmic trading, program trading); why market microstructure matters.
Diversification: expected portfolio return and variance; definition of risk premium; asset allocation - two assets: mean-variance preferences; optimal asset allocation with a risk free asset; CARA utility and normal returns; portfolio frontier; expected return relationships; estimation issues; diversification - the single index model; Treynor-Black model; factor models; statistics of asset allocation.
Portfolio immunisation: bond math; term structure; duration; numerical examples; immunisation of bond portfolios; convexity and immunisation; immunisation of equity portfolios.
Risk and performance management: types of risk; risk decomposition; hedge ratios; Value-at-Risk; Sharpe ratio; Treynor's ratio; more portfolio performance measures; Sharpe vs Treynor; portfolios with changing risk; market timing; non-linear payoffs; extreme risk.
Risk management: risk management for investors; risk management for corporations; risk management for banks; delta hedging; put option protection; put protection vs VaR; portfolio insurance with calls; hedging credit risk; hedging volatility; risk capital allocation.