MBA 709: Risk and Portfolio Management Master Syllabus
Course Instructor:
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Office Hours:
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Course Materials:
Course Website: Canvas
Course Objective and Contents
The Risk and Portfolio Management course will be focused on portfolio allocation and construction with a strong emphasis on measuring and managing risk. This will be a rigorous course that requires students to be familiar with basic calculus concepts. We will discuss the rationale behind the most commonly used risk measures and models for portfolio construction, stress testing, and scenario analysis. The examples and cases will investigate how derivative securities, trading strategies, and hedging impact those risk measures and models, and the consequences of those interactions.
Like most nance courses, MBA 709 focuses more on lasting nancial principles than on current institutional details. The course should provide a foundation for you to purse further studies connected to Portfolio Management and Risk Management. Additionally, many of the topics covered are common tools used in many Financial Services companies.
Textbook and Class Notes
The following are suggested textbooks for the course:
J.C. Hull. Options, Futures, and Other Derivatives. Pearson Education, Limited, 2014
R. Grinold and R. Kahn. Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Selecting Superior Returns and Controlling Risk. McGraw-Hill Library of Investment and Finance. Mcgraw-hill, 1999
If you plan to work for a bank, hedge fund or in a Treasury function in the future, I strongly recommend that you purchase, study and read Hulls book (including the chapters we will not cover in this course). If you have any other edition of that book, that will work ne too. Besides the textbooks, there will be some other readings and notes during the term. I will post copies of any notes or other useful material to Blackboard. Grinold and Kahns book is widely regarded as a great resource to understand key ideas in Portfolio Management, and is a book that can be very useful for anyone with an interest in quantitative techniques for portfolio and risk management.
Additionally, the solutions manual that accompanies the text books will be very useful to understand some of the topics we will cover in class.
The class notes will be self contained, but the textbooks and other papers or articles posted on Canvas will be very useful to help clarify the topics discussed in class. The slides will be posted on Canvas before each class, but may change afterwards depending on the actual content that was covered and discussed during class.
Course Contents
We will cover a some parts of Hulls book, including the topics listed below, but will not follow the book.
- Risk Measures
- Greeks, Value-at-Risk (Hull, Chapters 18, 21)
- Expected shortfall
- Stress testing and scenario analysis
- Volatility and Correlations (Hull, Chapters 22)
- Model Risk
- Common portfolio construction techniques
- Leverage and Liquidity Risk
Homework assignments and class exercises will often be easier to solve using a spreadsheet-like computer program. Knowledge of Excel or a comparable program is extremely useful. We will see examples in class on how to use some advanced features (solver, histograms, etc.) that are useful to have available when solving questions concerning asset allocation and risk analysis.
Note: I will request your feedback periodically to reassess the list of topics above and adjust it if necessary. Any course feedback on how you think the course is evolving (including constructive criticism and suggestions) and potential additional topics to discuss in class will always be welcome.
Tentative Schedule (Sample)
As noted above, the following is subject to change depending on the pace of the course, student feedback, and potential current topics relevant to the course material.
Week 1:
- Course introduction.
- Portfolio building blocks
- Equities
- Bonds
- Derivatives
- Pricing models and historical data
- Options and Greeks
- Bonds, duration and convexity
Week 2 and 3:
- Risk and Performance Measures
- Standard risk and performance measures
- Greeks, Value-at-Risk (Hull, Chapters 18, 21)
- Expected shortfall
- Brief discussion of parametric and non-parametric models for Value-at-Risk and other tail-risk measures
Week 4 and 5:
- Basic introduction/refresher to Linear and Multiple Regression
- Mean-variance analysis, diversification of risk, portfolio optimization
- Using tail-risk measures for portfolio construction and optimization
- Model Risk
- Portfolio Beta Management
Week 6 and 7:
- Aggregation (risk, performance), performance attribution, risk contribution
- Asset allocation and portfolio construction
- Passive portfolios
- Equal weight portfolios
- Risk weighted approaches (risk parity, etc)
- Allocation with VaR/Expected Shortfall and other tail-risk measures constraints Stress testing, scenario analysis
Week 8 and 9:
- Black-Litterman Model
- Leverage and liquidity risk
- Volatility clustering, non-normal returns distributions
- Introduction to Time-Series models.
- Estimating volatilities (EWMA, ARCH, GARCH)
Week 10:
- Class presentation of projects.
- Review of class material.
Evaluation and Grades
Course grades will be based on class participation, homework assignments, case write-ups, and on the nal group project. The nal grade will be an average of the following items, weighted as noted:
| Participation | 15% |
| Homework Assignments and Case Analyses | 60% |
| Group Project | 25% |
| Total | 100% |
You may consult on homework assignments with other students, but please let me know who you worked with in each of the assignments. The same applies to other sources such as resources on the internet and books on the subject, please cite all sources properly. Nevertheless, your written assignment should re ect only your own work. Homework assignments will generally be due in the class after they are distributed. Project assignments will tend to track current market events that are directly applicable to the course topics. Examples are discussing current news topics related to derivatives and risk management, presenting exotic derivatives and discussing the issues arising when pricing them, discuss how to change a pricing model to accommodate dividends, pricing with trinomial trees, pricing using Monte Carlo simulation, etc.
Homework and project assignments will be number graded. I will discuss the overall grades on the week preceding the midterm and final exams. Projects and case reports will be graded on a relative basis, with the best case report receiving the highest mark and the poorest report the lowest mark.
The overall class GPA for the course is usually within a range of 3.5 to 3.7. Grade cut-offs will be determined according to the following table:
| Grade | Score (rounded) |
|---|---|
| A+ | 97-100 |
| A | 94-97 |
| A- | 90-93 |
| B+ | 87-89 |
| B | 83-86 |
| B- | 80-82 |
| C+ | 77-79 |
| C | 73-76 |
| C- | 70-72 |
The grade cut-offs may be lowered based on the overall score distribution of the class.
Important Dates
| Project Presentation | June 18, 2018 |
Late Assignments
All assignments are due at the beginning of the class this includes homework assignments as well as case write-ups. If the assignment is to be discussed in class (working through harder homework questions, etc), no late assignments will be accepted after the beginning of the class. Otherwise, a late assignment will be considered but 25% will be immediately deducted from the assignment grade. Additionally, 25% of the total assignment grade will be deducted for every extra day after the assignment was due. If you will not be in attendance on the day a writing assignment is due, you may email me your assignment, but I must receive your emailed assignment before the beginning of class. I will make exceptions if necessary due to illness or other George Mason-approved emergencies.
Make-up Exam
Make-up examinations will not be given unless a student has a university-validated excuse and the instructor is noti ed of in advance of the examination. Without exception, students who request a make-up exam will be asked to provide appropriate documentation before a make-up exam is scheduled. Make-up exams must be completed within two weekdays of the original exam date. Approval of absence from the final exam must be obtained from the Assistant Dean of Academic and Career Services before a make-up exam will be arranged..
Accommodations for Disabilities
If you have a documented learning disability or other condition that may a ect academic performance you should:
- Make sure this documentation is on file with Office for Disability Services (SUB I, Rm. 2500; (703) 993-2474) to determine the accommodations you need;
- Talk with me to discuss your accommodation needs.
Please keep in mind that all academic accommodations must be arranged through the ODS.
Honor Code
The honor code applies to all work required for this class. As mentioned above, you are free to confer with other people when working on your assignments (except for the midterm and final exam), but the final decisions about the work turned in should be your own. Furthermore, you may not show or discuss the examination with past or future MBA students. I urge you to discuss your weekly observations with others. More information about the George Mason honor code is given on the George Mason web site at various locations. The School of Business adopted the following recommendations for Honor Code Violations:
| Type of Violation | First Offense | Second Offense |
|---|---|---|
| Plagiarism, Lying, Cheating on an assignment, homework, or including representing other’s work as your own | An F in the class | An F in the class and dismissal from program |
| Egregious Violation [e.g., stealing an exam; passing on confidential course material; cheating on an exam, project, or otherwise violating specified rules for an exam or project; etc.] | An F in the class and dismissal from program | An F in the class and dismissal from program |
Other Items
I will regularly send electronic messages to the entire class via Canvas. Thus, be sure you check the Canvas site frequently or arrange for mail sent to your George Mason e-mail account to be forwarded to whatever e-mail account you normally use. You are fully responsible for taking the steps listed above, for checking your e-mail regularly, and for any information communicated to the class via e-mail.
Inclement Weather
Information regarding weather related changes in the University's schedule (e.g., closing or late opening) will be provided on the University's main information line (703) 993-1000, the university website, and local media outlets (although media coverage cannot be guaranteed). I will plan to hold class unless the George Mason campus is officially closed.
Cell phones, laptops, and beepers
Cell phones are distracting and disrespectful to all the other members of the class. Please turn off all audible signals before class. Laptops may be used only for note-taking purposes and to access websites that may be of interest to the class such as current news articles on the main nancial news websites (Bloomberg, WSJ, FT, CNBC, etc.).
Useful Books and Other References
- L.B. Chincarini and D. Kim. Quantitative Equity Portfolio Management: An Active Approach to Portfolio Construction and Management. McGraw-Hill library of investment and nance. McGraw-Hill, 2006.
- G. Connor, L.R. Goldberg, and R.A. Korajczyk. Portfolio Risk Analysis. Princeton University Press, 2010.
- D.A. Dubofsky and T.W. Miller. Derivatives: Valuation and Risk Management. Oxford University Press, 2003.
- R. Grinold and R. Kahn. Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Selecting Superior Returns and Controlling Risk. McGraw-Hill Library of Investment and Finance. Mcgraw-hill, 1999.
- J.C. Hull. Fundamentals of Futures and Options Markets. Prentice Hall, 2011.
- J.C. Hull. Options, Futures, and Other Derivatives. Pearson Education, Limited, 2014.
- J.C. Hull. Student Solutions Manual for Options, Futures, and Other Derivatives. Pearson Education, 2014.
- D. Iverson. Strategic Risk Management: A Practical Guide to Portfolio Risk Management. Wiley Finance Editions. Wiley, 2013.
- M.L. Leibowitz, A. Bova, and P.B. Hammond. The Endowment Model of Investing: Return, Risk, and Diversification. Wiley Finance. Wiley, 2010.
- M.L. Leibowitz, S. Emrich, and A. Bova. Modern Portfolio Management: Active Long/Short 130/30 Equity Strategies. Wiley Finance. Wiley, 2009.
- A. Meucci. Risk and Asset Allocation. Springer Finance Textbooks. Springer, 2009.
- M. Schulmerich, Y.M. Leporcher, and C.H. Eu. Applied Asset and Risk Management: A Guide to Modern Portfolio Management and Behavior-Driven Markets. Management for Professionals. Springer Berlin Heidelberg, 2014.
- D.F. Swensen. Unconventional Success: A Fundamental Approach to Personal Investment. Free Press, 2005.
- D.F. Swensen. Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated. Free Press, 2009.
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