Asset Pricing & Portfolio Management

Objectives

Modern portfolio theory started with Harry Markowitz?s 1952 seminal paper ?Portfolio Selection,? for which he ultimately received the Nobel prize in Economics in 1990. He put forth the idea that risk-averse investors should optimize their portfolio combining two objectives: maximizing the expected return while minimizing risk. During the past 50 years, researchers and practitioners have reconsidered the Markowitz portfolio formulation and have numerous improvements and alternatives such as robust optimization methods, alternative measures of risk (e.g., Conditional VaR or Expected Shortfall), improved estimators of the covariance matrix via random matrix theory, robust estimators for heavy tails, factor models, mean models, volatility clustering models, risk-parity formulations, etc. This course will explore the Markowitz portfolio optimization and a selection of its variations and modern extensions. Practical illustrations using R programming will be presented.