Global Asset Allocation and Risk Budgeting
September 6-10, 2010 • PHILIPPE JORION
CANCELLED
Asset allocation is the process of optimally dividing investments among different types of assets, such as stocks, bonds, alternative investments, and cash. Nowadays, asset allocation must be viewed in a global context.
Objectives: This five-day course provides an overview of state-of-the-art, disciplined approaches to global asset allocation and risk budgeting. It examines the process of global asset allocation with particular emphasis on the management of risk. It shows how to optimally use risk budgeting as a portfolio construction tool. The course assumes a general knowledge of portfolio optimization and matrix algebra. Each day ends with exercises. A guest speaker will provide insight into the practical aspects of global asset allocation.
New feature: The course will examine how the traditional asset allocation framework can be extended to account for downside tail risk.
Target audience: All professionals engaged in portfolio management, both for private client portfolios and institutional funds. As the course focuses on quantitative models for asset allocation and risk control, knowledge of the basic quantitative portfolio theories is required.
Fees: The fee for this course is CHF 6’500 (incl. VAT). This covers tuition, extensive course material (including pre-course readings), lunches, and an official cocktail and dinner.
Accreditation: CFA 36 CE credits
Key topics:
Strategic asset allocation: The asset allocation process; the role and characteristics of global benchmarks.
Global portfolio allocation: Explanations for the “home bias” (the observed lack of international diversification); asymmetries in information across countries.
Risk measurement for global portfolios: Measuring risk with Value at Risk (VaR); portfolio optimization for global portfolios; absolute risk versus benchmark deviations; using benchmark weights to recover implied views (the Black-Litterman approach).
Risk budgeting for global portfolios: Separating alpha from beta bets; risk budgeting to allocate funds according to information ratios; effect of constraints on performance, leading to 130/30 strategies.
Global factor models: Implementing multi-factor models for tilting and risk control; implementing index replication strategies; assessing the effect of changing correlations across global markets; evaluating the country-versus-industry allocation debate.
Managing exchange-rate risk: Breaking down the contributions of currencies to the performance and risk of global portfolios; unhedged, hedged, or partially hedged benchmarks; the design of active currency management structures with overlays; the value of active currency management.
Constructing passive portfolios: Approaches to indexing; the role of completion portfolios; optimal rebalancing rules to the index; building stock and bond portfolios from factor exposures.
Constructing active portfolios: Forecasting expected returns; developing tactical asset allocation strategies across global stocks, bonds, and currencies.
COURSE CONTENT
Monday
Portfolio optimization
• The nature of financial risk, variability and diversification
• The importance of asset allocation
• Mean variance optimization and extensions
Benchmark selection
• The role of benchmarks in portfolio construction
• Characteristics of commonly utilized benchmarks
• Using optimization to construct tailor-made benchmarks
Tuesday
The role of international investments
• Integrated and segmented capital markets
• The role of exchange-rate risk
• Home bias and informational asymmetries
Risk measurement
• Approaches to measuring risk
• Risk vs. market value decomposition
• Forecasting volatility and correlation
Wednesday
Portfolio construction
• Optimization in absolute return space
• Optimizing relative to a benchmark tracking error
• Pitfalls in optimization
Risk budgeting
• Traditional asset allocation versus alpha allocation
• Evaluating active managers with the information ratio
• Allocating risk across active managers
Thursday
Factor models for portfolio construction
• Measuring portfolio risk with factor models for stocks and bonds
• Choosing factors with principal component decomposition
• Global vs. domestic factor pricing models
Correlations across national stock markets
• Sources of global diversification benefits
• Are industry effects now more important than country effects?
• Are there still benefits from international diversification?
Managing exchange-rate risk
• Exchange-rate risk and international portfolio performance
• Should we hedge exchange risk?
• Structuring active management: Currency overlays
Friday
Passive global portfolios
• Indexing and completion portfolios
• Security selection using factor exposures and linear programming
• Benchmark rebalancing and dynamic investment strategies
Active global portfolios
• Global tactical asset allocation
• Forecasting returns for global stocks and bonds
Review and Q&A session
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