Portfolio Theory

Catalog description

This course is concerned with the choice of investment strategies with differing risk/return characteristics, in the presence of uncertainty. We will examine the risk/return characteristics of both equities and fixed-income instruments. We will begin by looking at the market structure within which equities are traded, how market indexes are derived, and the various styles of professional asset management. Within the context of fixed-income investments, we will discuss the various theories of the term structure of interest rates, how to derive implied forward rates, and how to measure and manage interest rate risk using duration and convexity. Interest rate futures, options and swaps will also be discussed as instruments for managing interest rate risk in a fixed-income portfolio. Finally, we will discuss several equity valuation measurements and the concept of market efficiency. Empirical evidence for and against efficient markets will be examined, and the basic tenants of Behavioral Finance will be introduced.