 | The FAME Program
The FAME Program focuses on conceptual and practical knowledge in six key areas which are central to modern finance, and which are described further below:
- Fundamentals of finance and investments (optional)
- Equity, bond portfolio management and Hedge funds
- Foreign exchange and money market
- Derivatives
- Market and credit risk management
- Financial engineering
Fundamentals of Finance and Investments – Optional Pre-Program Module
This pre-program module is an optional week which lays the foundations for the financial techniques used in the FAME Program. The module provides a concise introduction to classical concepts in finance, but its main emphasis is on applying these in a more formal way to real numerical situations, using prepared Excel spreadsheets. Topics addressed are:
- Statistics for asset management (computation of return and volatility, linear regression, hypothesis testing)
- Modern portfolio theory (risk and return, diversification, efficient frontier)
- Fixed income (bond pricing, duration, convexity, interest-rate immunization)
- Futures and options (spot-future parity, Black-Scholes)
- Value-at-risk.
While this module is optional, it is strongly recommended for all FAME participants except for those with excellent quantitative skills.
Asset Management
This is the key module of the program. The objective of the module is to provide a thorough understanding of how the most recent quantitative techniques can be used in asset management. The module is placed in the context of a portfolio management project, where participants construct and manage a portfolio in real-time. They thus have the opportunity to apply the techniques taught in the course in a real-world environment.
Building on the fundamentals of portfolio theory and fixed-income management, the module investigates international asset allocation, analyzes the quantitative tools to manage passive and active portfolios, and discusses the various principal hedge fund strategies. More specifically, the module addresses the following:
- Basic portfolio theory (efficient frontier, mean-variance portfolio allocation, multiple factor models, CAPM)
- Fixed-income management (duration and convexity, mortgage-backed securities, fixed-income portfolio allocation, interest-rate risk management)
- Portfolio management (active versus passive management, portfolio risk, rebalancing strategies)
- International asset allocation (international allocation and diversification, impact of currency risk, principles of overlay management)
- Hedge funds (long/short, global macro, arbitrage strategies, hedge fund portfolio management).
Foreign Exchange and Money Market
The ever-increasing economic and financial integration of countries has increased the internationalization of portfolios. This in turn has had an impact on the importance of FX management as well as international money markets. This module addresses some of the most important instruments available, such as forward rates, FRAs, repos, interest-rate futures, money market swaps, and indexed swaps.
Derivatives
A good grasp of derivatives and the working of the respective markets is essential for practitioners. This includes understanding both plain vanilla as well as complex derivative products on the one hand, but it also includes the knowledge of how to apply these products to hedge risks and manage exposure. Through case studies and applied workshops participants are able to gain practical experience with these more advanced products. Specifically, this module addresses the following topics:
- Vanilla options (option-pricing with Black-Scholes, option strategies for hedging, directional trading)
- Complex options (Exotic options, Double No-Touch options, etc.)
- Managing the risk of a derivative position
- Applying derivatives in portfolio management.
Risk Management
The Risk Management module provides an overview of the most recent techniques used in risk management of portfolios. Participants are introduced to:
- Risks faced by financial institutions (market risk, credit risk, operational risk, model risk and liquidity risk)
- Principles of risk management (based on well-known practical cases)
- Extreme value theory (Value-at-Risk estimation, historical simulations, Monte Carlo and delta normal method)
- Empirical and theoretical issues on corporate credit risk (probability of default, recovery rates)
- Structural and reduced-form models of default risk.
Financial Engineering
Building on the knowledge acquired during the first weeks of the FAME Program, participants learn how to price derivative and structured products. Financial Engineering is the final module, and as such is highly participatory, and significant time is devoted to group work. This enables the participants to assess how well they are able to integrate what they have learnt in the first weeks into a more complex realistic scenario. Specifically, the module covers the following topics:
- Construction and pricing of complex structured products
- Reverse engineering of structured products
- Measuring time-varying volatility in financial time series and implications on volatility trading strategies
- Selected current examples (for example credit default swaps, collateral debt obligations, leveraged super senior notes).
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