To achieve the grade 12, students
should meet the following learning objectives with no or only minor
mistakes or errors: The grading of the class is based on the
students’ proven ability to understand active investment strategies
and analyze them using rigorous quantitative methods. This
includes, among other things,
- Understanding each of the trading strategies covered in class,
including an ability to analyze them conceptually/mathematically
and apply them in specific examples. (This is an important part of
the class.)
- Understanding why strategies might work, and why they might
not.
- Computing performance measures and critically evaluate the
output.
- Simulating backtests of investment strategies.
- Understanding liquidity and transaction costs, and deriving the
net returns in a backtest.
- Understanding margin requirements, computing an investment
strategy’s capital use, including knowledge of when it would
receive a margin call.
- Applying regression analysis, including in return
forecasting
- Understanding biases, including being able to avoid such
pitfalls as look-ahead bias, selection bias, and survivorship
bias.
- Knowledge of the historical events connected to hedge funds and
markets covered in class.
- Working independently on projects involving mathematical
analysis and data analysis
- Generalizing arguments, methods, and concepts to problems that
have not been analyzed explicitly throughout the
course.
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The class describes some of the main strategies used by active
investors such as hedge funds and proprietary traders and provides
a methodology to analyze them. In class and through exercises, the
strategies are illustrated using real data and students learn to
use “backtesting” to evaluate a strategy. The class also covers
institutional issues related to liquidity, margin requirements,
risk management, and performance measurement.
The class discusses the main strategies used by hedge funds in
individual equity markets (equity long-short, equity market
neutral, dedicated short bias), in tactical asset allocation of
equity indices, currencies, fixed-income, and commodities (global
macro, managed futures), and in relative-value arbitrage strategies
(event driven investments, convertible bond arbitrage, fixed income
arbitrage).
To analyze these active investment strategies, the class applies
tools for performance measurement, backtesting, regression
analysis, managing transaction costs, market liquidity risk,
funding a strategy, margin requirements, risk management, drawdown
control, and portfolio optimization. Also, the class discusses the
economics underlying these strategies, why certain strategies might
work and why others might not.
The class is quantitative. As a result of the techniques used in
state-of-the-art investments, the class requires the students to
work independently, analyze and manipulate real data, and use
mathematical modeling.
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