Formation/Cours

At the end of the course the student should be able to apply theoretical and analytical concepts of utility theory and the mean-variance framework of Markowitz to portfolio management and wealth planning. Students should be able to collect accurate data for portfolio selection and build a portfolio of plain financial assets in a mean-variance performance perspective. They should be able to assess existing investment opportunities and form expectations about future investments’ performance.

The completion of the project also ensures that students work with rigor and precision, are well-organized in order to ensure team efficiency, good communication and efficient time management.

It builds on the modern portfolio theory as developed by Markowitz and focuses on basic principles of the portfolio management process that remain important today.

One of the main themes is the risk-return trade-off. Higher expected returns generally come along with the need to bear greater investment risk. But how can we measure risk? What should be the (equilibrium) quantitative trade-off between risk and expected return? Specifically, we devote attention to the effect of diversification on portfolio risk, as well as the implications of efficient diversification for the proper measurement of risk and the risk-return relationship.

The course also places great emphasis on capital allocation between risky assets and and risk-free assets and asset allocation (between risky assets). Asset allocation is the primary determinant of the risk-return profile of the investment portfolio. Finally, we discuss ex-ante and ex-post measures of portfolio performance, in order to develop a framework for ranking portfolios.