Asset Pricing and Portfolio Optimization

The course is held in English. It is an on-campus course (the course is not live streamed), taking place in the winter semester. The course is divided into lecture and exercise units. The dates of the course can be found in the KIS.

The examination is a written final exam at the end of the lecture period.

After successful completion of the module, students:

  • Are able to estimate risk and returns from portfolios and single assets.
  • Can understand and apply Markowitz Portfolio Theory, including estimating minimum variance portfolios, mean-variance portfolios, with and without riskless assets.
  • Learn the limitations to the Markowitz portfolio theory and possible alternatives to overcome the limitations.
  • Are able to understand the theory and practice of the Capital Asset Pricing Model
  • Can apply the asset pricing models to estimate expected returns of single assets.
  • Learn how to estimate measures of portfolios’ performance.

A. Introduction to Asset Management

  • Role of the Financial System
  • Introduction to Investments and Asset Management
  • Overview of Securities Trading
  • Stock Market Indices
  • Investment Funds

B. Markowitz Model of Portfolio Theory

  • Risk and Return for a Single Asset
  • Risk and Return in a Portfolio
  • Portfolio Optimization and Risk-efficient Frontier without Riskless Asset
  • Portfolio Optimization and Risk-efficient Frontier with a Riskless Asset

C. Limitations and Solutions for the Markowitz Model

  • Limitations of the Markowitz model
  • Michaud optimization
  • Black-Litterman as an alternative model
  • Current Research and New alternatives to Improve the Markowitz Model

D. Capital Asset Pricing Model (CAPM)

  • Introduction to CAPM
  • Derivation of CAPM
  • Use of CAPM for valuation and asset pricing
  • Empirical tests of CAPM

E. Asset Pricing

  • Efficient Market Hypothesis
  • Cross-sectional Return Predictors (Capital Market Anomalies)
  • Joint Hypothesis and Asset Pricing Models
  • Fama-French Three-Factor Asset Pricing Model
  • New Generation of Asset Pricing Models

F. Performance Measurement