09.00 - 12.15

Risk-Based Investment Strategies & Estimating Risk

• Risk-based approaches to investing: minimum variance, risk parity, risk budgeting, equal-weighting, maximum diversification
• Drivers of success of risk-based strategies
• Time-varying risk characteristics, empirical risk anomalies
  • Autocorrelation and volatility clustering, GARCH models
  • The positive relationship between equity risk and return over time
  • The relative importance of volatilities and correlations
• Estimation of the covariance matrix
  • Sample covariances, EWMA and GARCH estimators
  • Bayesian shrinkage estimators
  • Filtering noise in covariances: Random Matrix Theory
  • Modelling and tweaking correlations: consistency issues & solutions, correlation scenarios and stress testing

Exercise: developing a quantitative volatility trading strategy and potential applications for tactical asset allocation

12.15 - 13.15 Lunch Break

13.15 - 17.00

Estimation Risk and Estimation Risk Management

• Estimation risk as risk in input parameters
• A scenario-based approach to estimation risk management
• The stochastic nature of efficient frontiers: confidence bands, the Resampled Efficient Frontier™
• Distortions in risk and return estimates: the impact of liquidity and survival biases, statistical unsmoothing approaches, evidence-based multiplier approaches
• Portfolio Optimisation: Markowitz
• Robust portfolio construction: modelling uncertainty, regret minimization

09.00 - 12.15

Portfolio Construction beyond Mean and Variance

• Risk measurement for non-normal assets: LPM/UPM, VaR/CVaR, Drawdown risk
• Higher Moments: interpretation, uses and challenges
• Behavioural portfolio construction: implementing insights from Prospect Theory
• CVaR and LPM optimization: exact methods and approximations
• Understanding optimization algorithms: threshold accepting, simulated annealing, evolutionary methods, random portfolios
• Multi-criteria optimization: case study calculating sustainability-efficient portfolios and frontiers

Tail Risk Management

• The normal distribution assumptions in Finance
• Interesting non-normal distributions: non-normal mixture, NIG and Cornish-Fischer distributions
• Non-Normal Risk Budgeting based on Modified VaR/CVaR
• Building non-normal portfolios from elliptical distributions
• Drawdown Risk Management: CPPI 2.0

12.15 - 13.15 Lunch Break

13.15 - 17.00

Diversification in a Non-Normal and Non-Linear World

• Diversification is more than correlation: overdiversification, diworsification
• Taking into account correlation asymmetries in portfolio construction: a closer look at equities, bonds and gold
• Non-linear correlation measures and their limitations: the case of the Spearman rank correlation coefficient
• Introduction to Copula Theory: potential and current limitations

Exercise: Extracting bivariate copulas from time series data for non-PhDs

Model Risk Management for Investment Management

• Forecast risk equals model risk plus estimation risk
• Approaches to managing model risk of investment portfolios: from practical approaches to introducing model risk policies
• Beware: Illusion of control

Summary and Outlook

Termination and Evaluation of the Seminar