Investments course

TUM-FIM program

 

Course description

 

This course will be delivered in three parts:

 

Part 1. Introduction to Investments.

 

              A case study. The snow fund.

              Qualitative characteristics of traditional and alternative investments

              The fund structure and its service providers

o      The management company

o      The Prime Broker

o      The administrator

              Availability of fund data and databases

              Types of Hedge fund investments

o      Fund of funds

o      Leveraged investments: options

o      Guaranteed notes

o      Collateralized fund obligations (CFO)

 

Part 2. Hedge Fund Strategies

 

              Convertible arbitrage

              Equity long short

              Managed Futures

              Distressed investing

              Fixed income

              Merger arbitrage

 

Part 3. Quantitative methodologies to analyze fund return data

 

              Returns: definitions and characteristics, AIMR compliance

              Volatilities: definitions and characteristics

              Covariances and correlations

              Applications to portfolio risk management: Sharpe ratio

              Non Gaussian measures:

o      Loss/gain deviations

o      Moments (skewness, kurtosis)

o      Omega

              Correlation risk:

o      Correlation switching models

              Operational risk

o      Manager blow-up risk (Merton model)

o      Qualitative screening (EDHEC methodologies)


Course Delivery

 

The course will consist of two sets of activities:

1.         Mornings will be devoted to lectures; lecture notes are available at Prof. Secos website at www.risklab.ca/seco. Lectures are designed to be interactive and students are encouraged to actively participate in those both by asking questions as well as by answering questions asked by the instructor during lectures.

2.         Afternoons will be devoted to instructor assisted assignments, which could include:

a.           Comparison between diversification properties of hedge fund investments and traditional investments in stocks and bonds

b.           Comparison between different performance measures of different hedge fund strategies

c.           Non-gaussian risk calculations (Omegas, correlation breakdown, etc.)

d.           Construction of optimal hedge fund investments

These assignments will require some computer programming skills in some mathematical software, such as Matlab. They will use publicly available data from the HFRX indices. Students are required to seek membership at the www.hedgefundresearch.com website (which is free) so they can download this information. Processing of membership can take up to one month, so students should arrange for this well in advance of the start of the course.


Course evaluation

 

The course will have two requirements that will be the basis for students marks:

1.         An oral exam, possibly through skype, where students will be tested on their practical knowledge of the concepts delivered during the course.

2.         An essay that presents, in a well-constructed and thoughtful manner, the practical work developed during the afternoon part of the instruction of the course.

 

Marks will be the result of an equal weighted average of the results of these two course assignments.