Faculté des Hautes Etudes Commerciales (HEC)

Objectifs

• By the end of the course you should be able to comfortably discuss the structural, return and risk features of the major asset classes available to institutional investors
• You should be able to construct simple portfolios based on the optimization methods as discussed in the lecture, and recognize the advantages/risks/limitations of the methods employed
• In the context of insurance/PF ALM, you should understand the necessity of a well-developed ALM system, immunization strategies to mitigate interest rate and FX risk and other simple ALM/LDI techniques in the context of insurer and pension fund portfolios

Contenus

> Note that the syllabus as below is subject to adaptation <

I Financial Products in Insurer/PF portfolios (c. 6 sessions)

• Equity: types, voting rights, takeovers, industry analysis, business cycles, financial leverage, trading multiples, index types
• Credit: types, fixed income risks, government debt, ratings, private debt (security, liens, liquidation, financial covnenants), bootstrapping zero-curves, YTM, arbitrage, duration/convexity, barbell strategy
• Real Estate to CMBS: real estate basics (commercial rents, yields, cycles, real estate P/L), real estate finance (structure, covenants, underwriting example), CMBS (idea, structure, example, issues)
• Derivatives: forwards/futures, no-arbitarge pricing, clearing house/margin accounts, swaps, ISDA agreements, DC/BD conventions, FRAs/Euro-Dollar Futures, options (structures, BS price, put-call parity, option strategies)

II Portfolio Management (c. 6 sessions)

• Institutional investor portfolios – life, non-life, DC and DB pension plans
• TAA, SAA, DAA
• Dynamic strategies: Buy/Hold, Constant Mix, CPPI, OBPI, backtesting strategies in MATLAB
• Static portfolio theory: matrix algebra, utility maximsation, risk aversion, mean-var, two-fund separation theorem, portfolio constraints, transaction costs, QPs in standard form, true/estimated/actual frontiers, portfolio resampling, Bayesian methods, Black-Litterman, testing of methods in MATLAB
• Idea of multi-stage portfolio optimization: dynamic programming

III ALM for Insurers/PFs (c. 2 sessions)

• Insurer/pension fund ALM systems, regulatory constraints, LDIs, bond portfolio roll-overs vs. interest rates
• Surplus optimization
• Immunization
• [ALM example for pension funds]

Références

• Slide book as provided
• Additional reading, e.g.
  > Maginn et al. (2007): Managing Investment Portfolios – a dynamic process (CFA publication).
  > Meucci (2008): Asset and Risk Allocation.
  > Scherer (2007): Portfolio Construction and Risk Budgeting.
  > Zenios ed. (2007): Handbook of Asset Liability Management.

Pré-requis

No hard prerequisites, but you should be familiar with the contents of

• Quantitative Methods for Actuaries
• Probability and Stochastic Processes
• Principles of Finance

Evaluation

1ère tentative

Examen:

Ecrit 2h00 heures

Documentation:

Non autorisée

Calculatrice:

Autorisée avec restrictions

Evaluation:

• 5% Class Participation
• 30% Exercise Assignments and Case Study
• 65% End of Term Exam, 120mins
  (written, closed book, non-programmable calculators)

Rattrapage

Examen:

Ecrit 2h00 heures

Documentation:

Non autorisée

Calculatrice:

Autorisée avec restrictions

Evaluation:

• Replaces only End-of-Term Exam:
  65% towards final grade, 120mins
  (written, closed-book, non-programmable calculators)