Fundamentals of Quantitative Investing

 

Course description

 

This course will be delivered in three parts:

 

Part 1. Introduction to Investments.

 

·       A case study. The snow fund.

o   The Prime Broker

o   The administrator

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. Secoճ 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.

  1. Afternoons will be devoted to instructor assisted assignments, which could include:
    1. 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.     In-class participation (20%)

  1. 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 (80%)