Ateneo - UPO

The first part of the course introduces the main notions regarding the classical theory of Portfolio (Model Media-Variance, CAPM). In the second half, the focus is on market risk, focusing in particular on VaR calculation and regulatory requirements. The main and most significant results are derived analytically and commented on.

Portfolio Theory: materials published on DIR. A useful reference textbook is C. Huang, R. H. Litzenberger. Foundations for Financial Economics. Prentice Hall. 1988 For the market risk part: Jorion P., (2007). Value at Risk, 3rd ed. Christoffersen, P., (2012). Elements of Financial Risk Management, Academic Press, 2nd edition. Additional materials provided by the teacher.

By the end of the module, students will have acquired a thorough understanding of the main Portfolio Theory models and will be able to implement them independently. They will also be able to recognize the key challenges associated with the calculation of returns and the measurement of market risk, with particular reference to Value at Risk (VaR) as a risk metric.

Basic knowledge of mathematics and statistics. Minimum knowledge of Excel and programming

Lectures and exercises.

Attendance of the lecture class is not compulsory but is strongly recommended. Students with physical disabilities, Learning Disabilities or Special Education Needs can request specific services and tools via the Staff Sviluppo e Coordinamento Carriere e Servizi alle Studentesse e agli Studenti, consulting the University webpage: https://www.uniupo.it/en/services/servicesstudents-physical-or-learning-disabilities. Students with disabilities, learning disabilities or special education needs, once they have contacted the University Staff, can refer to the tutor in charge of the course to define the examination modalities, concerning academic aspects.

A compulsory oral exam during which the student will also be asked to solve some problems on the course topics.

Brief review of random variables, distributions, expected utility theory, and decisions under risk conditions. Construction of a portfolio of risky assets, with and without the presence of a risk-free security, according to the criterion medium-variance (Markowitz). Efficient frontier construction. Sharpe index. CAPM. Returns calculation methods: linear returns vs logarithmic returns. Main characteristics, properties and implications for the calculation of the performance of a portfolio. Introduction to the main types of financial risks. Market risk: critical issues, regulatory requirements and calculation of Value at Risk for individual assets and for a portfolio of risky assets.

By the end of the course, students will have acquired a thorough understanding of the main aspects of Portfolio Theory. They will also be able to assess the risk of their own portfolio and to independently implement the models studied, providing a critical interpretation of the results.