Lecture 6 advanced investment 高级投资教学课件.pdf

Lecture Advanced Investments, October 10th, 2012 Bonds, derivatives foreign assets Dr. P.J.P.M. (Philippe) Versijp Advanced Investments Lecture 6 – 10/10/12 1/35 Program • LPM assignment • Asset Pricing models: not for stocks only • Bonds – Interest rate risk – Default risk – 5 factor model • Derivatives • Foreign assets • Formula of the week Advanced Investments Lecture 6 – 10/10/12 2/35 LPM assignment • Minimize the LPM for a given level of return • Choose the threshold and the order. – Sensitivity for the threshold can be large; – Too low a threshold might mean the ‘elimination of risk’. – Importance of a representative sample increases. • Notice that portfolio weights are no longer linear functions of the required return (so no ‘neat’ formula!) Advanced Investments Lecture 6 – 10/10/12 3/35 Roadmap (Implied) risk Anomalies Portfolio weights (incl. attitude, information properties of bonds / foreign assets / derivatives) Descriptive route: ‘what’s happening out there?’ Risk return: Theory Risk return: Empirics Normative route: ‘how to invest’ Return Preferences distributions, (marginal utility) correlations Advanced Inv