Portfolio Management

EMEC028S6 (30 credits)

Lecturer: Ranch Patel

Aims

This standalone module provides an introduction to the theory and practice of portfolio construction and management. This begins with a treatment of the basic financial instruments such as bonds and shares and their derivatives including futures and options. The financial theory of the valuation of these derivative securities is then used as a basis to discuss trading strategies. The course also deals with the monitoring and evaluation of risky portfolios. A recent inclusion is the discussion of credit derivatives (CDO and CDS) and their role in the recent credit crisis.

Objectives

On successful completion of this course, students should:

• understand the processes of speculation and arbitrage and be able to identify strategies that exploit trading and arbitrage opportunities;
• understand the functions of portfolio managers and their role in assessing the objectives and constraints of the investor client;
• know how to measure, adjust and assess realised portfolio performance;
• understand the role of hedging in portfolio management and be able to design efficient hedging strategies.

Required Reading

• Blake, D, Financial Market Analysis, Wiley, Chichester, 2000 (DB).
• Bodie Z, A Kane and AJ Marcus, Essentials of Investments, McGraw Hill, 7th edition.

Background Reading

• Bain, AD, The Economics of the Financial System, Basil Blackwell, Oxford, 1992.

Lecture Schedule

• Speculation and arbitrage; (DB Chapter 12) problems 2 – 12, 19
• Portfolio management; (DB Chap 14) problems 1– 6, 11, 31, 35, 37, 39, 40, 43
• Portfolio performance measurement; (DB Chap15) problems 2, 7, 9, 11, 12, 14
• Hedging; (DB Chapter 16) problems 4, 5, 7, 14, 16, 26, 30

Assessment

A take home assignment to be completed during the Christmas or Easter vacation, is compulsory and will count for 20% of the course unit mark. In June, there will be a three-hour formal examination, which will count for 80% of the course unit mark.