B029676 - PORTFOLIO CHOICE AND BOND MARKETS -MOD.A

English

The course presents the basic models for the pricing of financial instruments which value is related to the interest rate. Forward rate agreements, Eurodollar Futures and Bonds are the analized in detail. The course will deal also with the strategies that can be implemented in order to face and contrast the interest rate risk.
The Portfolio Choice part will deal with the fundamental concepts of portfolio optimization. Applications with Python, Matlab and R.

The learning material for the Bond Market section of the course will be made available from the teacher according to the contents of the lessons.
The platform ARPM will be available for students enrolled in this course for the Portfolio Choice section. ENROLLMENT MUST be completed during the first week of the course (13-17 September).

The aim of the Bond Market part of the course is to make confident the students with the financial instruments related to the interest rate, becoming able to price them and to decide the different possible strategies available to contrast the market risk.

The knowledge required for the Bond Market section
as well as the Portfolio Choice part of the course are all the contents given in the courses of Computational Finance and Quantitative Finance and Derivatives. A good practice in excel is also essential.

The Bond Market part of the course is organized in classroom lessons and excel sections.
The Portfolio Choice part is organized with the Learning management system by ARPM.

The course is divided into two parts:
Portfolio Choice 6 CFU
Bond Markets 6 CFU
The platform ARPM will be available for students enrolled in this course for the Portfolio Choice section. ENROLLMENT MUST be completed during the first week of the course (13-17 September).

A final oral exam is the way to verify the level of knowledge obtained by the student in the Bond Market part of the course,giving him a grade. During the exam the student has to demonstrate also his ability in building up specific excel models assigned by the teacher during the course.
PORTFOLIO CHOICE:
The assessment will be based on:
- Activity on the Advanced Risk and Portfolio Management Lab
- Theory/Code Q&A's
- Class participation to the flipped classrooms
- Homeworks
Partecipation into these 4 activities during the entire semester is compulsory.

BOND MARKETS
- Valuation of cash flows and zero coupon bonds.
-Term structures
-Bond Performance Indexes.
-Forward rates.
-Forward rate agreements and Eurodollars futures.
-Floating rate bonds.
-The Italian Government Bond Market.
-Interest rate risk, duration, convexity.
-Basis Point value, volatility of a bond and dollar duration.
-Financial immunization.
-Swaps and swap rates.
-Effects of the financial crisis on the valuation of swaps.
-Convertible bonds.
PORTFOLIO CHOICE:
- Fundamental concepts of portfolio optimization
- Smooth and convex programming
-Mean-variance principles
-Analytical solutions to the mean-variance problem
- Estimation and model risk
- Robust allocation
- Black-Litterman
- Generalized probabilistic inference
- Signals
- Cross-sectional strategies
- Time series strategies
- High-frequency risk drivers
- Market impact models
- Coding Lab in Phyton, Matlab, R