Gibson Brandon Rajna
Prof. Rajna Gibson Brandon is Managing Director of the Geneva Finance Research Institute, she holds a Swiss Finance Research Institute Senior Chair and she is the Research Director of the Swiss Finance Institute.
She holds a Ph.D. in Economic and Social Sciences (Specialization in Finance) from the University of Geneva.
Advanced Asset Pricing
Objectives of the Course:
This Master’s Course focuses primarily on theoretical and empirical developments in continuous-time asset pricing and Portfolio Management. The first part of the course focuses on continuous-time optimal consumption and portfolio choice models as well as on continuous-time asset pricing models. The second part of the course is dedicated to selected research topics in asset pricing and portfolio management that shall also be of interest to students searching for a master’s thesis research topic.
The course will be structured into an introductory session and 6 main chapters covering the following topics:
- Review of the static portfolio choice and asset pricing models
This review chapter is based on the e-learning course ﬁnancial markets (www.ﬁnancialmarkets.ch) and will cover about 10 modules. The e-learning course is optional and consists of a self-taught part of the lecture that will not be subject to regular class room sessions. The material covered in the e-learning course is a pre-requisite for the subsequent chapters.
- Portfolio and consumption choices in continuous-time
– The case of a constant investment opportunity set
– The case of a stochastic investment opportunity set
– Strategic asset allocation and the role of the investment horizon
- Equilibrium asset pricing models and empirical evidence
– The intertemporal capital asset pricing model (ICAPM)
– The consumption capital asset pricing model (CCAPM)
– Habit formation
– The equity premium puzzle
– Empirical evidence on asset pricing models
- Introducing market imperfections and non-separable preferences
– Asset allocation under transaction costs
– Asset allocation under parameter uncertainty and the role of learning
– Optimal portfolio choices under non-separable preferences
- Credit risk and the pricing of credit sensitive claims
– Ratings based models
– Market based credit risk models
- Further selected research topics
– Portfolio management
– Liquidity and high frequency trading
– The 2007-2009 ﬁnancial crisis
This sixth chapter will be conducted in parallel as the third hour of each class. For this part of the class, each group of students will be asked to make an oral presentation of an academic paper focusing on one of the above listed topics.
Organization of the course:
Each class will consist partly of lectures covering the ﬁve ﬁrst chapters and partly of class room discussions of academic articles devoted to the selected topics in chapter 6.
The lectures will be based on teaching notes and on recommended readings from academic journals and textbooks. There will be exercise sessions as well.
Active class participation will be encouraged and will thus imply that required readings be done in advance. We will also devote some time to discuss relevant research papers as well as ideas for Master thesis research papers in the ﬁeld of continuous-time asset pricing and portfolio management.
The ﬁnal grade is based on an oral paper presentation, homeworks and on a ﬁnal written examination. The homeworks and oral presentation account for 50%, and the ﬁnal examination for 50% of the ﬁnal grade.
Objectives of the Course:
This course will present the main strategies used by hedge funds, analyze their risk-return trade-offs and assess their ability to generate positive performance (alpha). We will also review the institutional, organizational and competitive characteristics of the hedge fund industry. The course will draw on the most recent academic research on hedge funds and its relation to industry practice. Additional topics include the role of hedge funds as liquidity providers, hedge fund replication and the impact of hedge funds on financial market stability. Finally, one (or more) industry professionals will share their insights into real world hedge fund investing.
Week 1 - An introduction to hedge funds
• Definition(s) of a hedge fund
• Presentation of market participants in the hedge fund industry
• Growth and change of total hedge fund assets and strategy assets
• Sources and limitations of hedge fund return data
• Hedge fund marketing claims versus research evidence
Weeks 2 & 3 - Hedge fund strategies
• Hedge fund strategy classifications are defined by the industry and are not standardized
• Brief presentation of the vanilla forms of popular strategies (long short equity, global macro, fixed income arbitrage, distressed securities, and others)
• Detailed presentation of trend following and convertible bond arbitrage
Weeks 4 & 5 - Identifying (priced) hedge fund risk factors – theory
• Traditional risk factors – linear & nonlinear (options)
• Recently proposed risk factors (unexpected changes in volatility, unexpected changes in liquidity, ambiguity risk)
• Replicating hedge fund strategies with liquid securities to understand risk factors (trend following and contrarian trading)
• Proposed consensus risk factor models
• How many hedge funds are needed to fully diversify a portfolio?
Weeks 6 & 7 - Performance of hedge funds - empirical
• Hedge fund alphas from risk adjusting with consensus risk factor models
• Does a liquidity risk factor eliminate all other risk factors?
• Luck versus skill
• Are alphas predictable?
• Do measured alphas include omitted risk premia?
Week 8 - Sources and limits of hedge fund performance
• Superior investment skills
• Less regulatory constraints & flexibility
• Economies of scale
• Liquidity rents
• Insider trading
• Limits to arbitrage
• Competition from bank proprietary trading desks
Week 9 - Replicating hedge funds returns with liquid securities for investors
• Linear hedge fund replication
• Other replicating techniques
Week 10 - Analyzing hedge funds flows
• Flows, performance, and managerial incentives in hedge funds
• Performance, risk, and capital formation
Weeks 11 & 12 - Do hedge funds destabilize financial markets?
• Hedge funds during financial crises
• The LTCM case
• What Happened to the Quants in 2007?
• Measuring contagion in the hedge fund industry
• Shareholder activism
Week 13 - Fund of Hedge Funds
• Dr. Nils Tuchschmid presents selected topics on professionally managed portfolios of hedge funds
Organization of the course:
Each class will consist of lectures and class room discussions drawing on recent academic articles. All academic articles will be available to download at chamilo.unige.ch. Only some of these articles will be required reading and these will be listed separately. We will occasionally devote a small part of class time to discuss progress on the required short research paper (see below) as well as topics for Master theses.
Active class participation will be encouraged, based on required readings. The final grade will be based on a short (5 page) research paper (30%) and a written examination (70%).
- “Margining in Derivatives Markets and the Stability of the Banking Sector”, Working Paper, University of Geneva, forthcoming in the Journal of Banking and Finance ( co-authored with Carsten Murawski).
- “Preferences for Truthfulness: Heterogeneity Among and Within Individuals”, accepted in April 2012, forthcoming in February 2013 in the American Economic Review, (co –authored with Carmen Tanner and Alexander F. Wagner).
- “Liquidity Risk, Return Predictability and Hedge Fund Performance: An Empirical Study”, forthcoming in February 2013 in the Journal of Financial and Quantitative Analysis, (co-authored with S. Wang).
- “Optimal Hedge Fund Portfolios under Liquidation Risk”, Quantitative Finance, Vol. 11, No. 1, January 2011, pp. 53-67, (co-authored with S. Gyger).
- “Modeling the Term Structure of Interest Rates: A Review of the Literature”, in Foundations and Trends in Finance, Vol. 5, No. 1-2, pp. 1-156, 2010, (co-authored with F. Lhabitant and D. Talay).
- “Viscosity Solutions to Optimal Portfolio Allocation Problems in Models with Random Time Changes and Transaction Costs”, Radon Series on Computational and Applied Mathematics, Vol. 8 , pp. 1-37, 2009, ( co-authored with C. Blanchet-Scaillet, B. de Saporta, D. Talay and E. Tanré).
- ”Stock Options and Managers Incentives to Cheat”, Review of Derivatives Research, Vol. 11, pp. 41-59, 2008 (co-authored with M. Chesney).
- “Financial Integration, Economic Instability and Trade Structure in Emerging Markets”, Journal of International Money and Finance, Vol. 27, No. 4, pp. 654-675, 2008 (co-authored with A. Chambet).
- “Model Risk for European-Style Stock Index Options”, IEEE Transactions on Neural Networks, Vol. 18, No. 1, January 2007, (co-authored with R. Gencay).
- “The Style Consistency of Hedge Funds”, European Financial Management (Special Issue on Hedge Funds), Vol. 13, No. 2, 2007, (co-authored with S. Gyger).
- “Technical Analysis Compared to Mathematical Models Based Methods under Parameters Mis-specification”, (shorter version of NCCR FINRISK Working Paper No. 253), Journal of Banking and Finance, Vol. 31, No. 5, 2007, pp. 1351-1373, (co-authored with C. Blanchet-Scaillet, A. Diop, D. Talay and E. Tanré).
- “Model Misspecification Analysis for Bond Options and Markovian Hedging Strategies”, Review of Derivatives Research, Vol. 9, No. 2, September 2006, (co-authored with M. Bossy, F. Lhabitant, N. Pistre and D. Talay).
- ”Stock Market Performance and the Term Structure of Credit Spreads”, Journal of Financial and Quantitative Analysis, Vol. 1, No. 4, December 2006, (co-authored with A. Demchuk).
- ”Analyzing Firms Strategic Investment Decisions in a Real Options Framework”, Journal of International Financial Markets, Institutions & Money, 2003, pp. 1-29, (co-authored with P. Botteron and M. Chesney).
- ”Performance in the Hedge Funds Industry: An Analysis of Short and Long-Term Persistence”, Journal of Alternative Investments Vol. 6, No. 3, 2003 (co-authored with P. Barès and S. Gyger).
- “The Pricing of Systematic Liquidity Risk: Empirical Evidence from the US Stock Market”, Journal of Banking and Finance, 2003, pp. 1-74, (co-authored with N. Mougeot).
- “Reducing Asset Substitution with Warrant and Convertible Debt Issues”, Journal of Derivatives, Vol. 9, No. 1, Fall 2001, pp. 39-52, (co-authored with M. Chesney).
- “Volatility Model Risk Measurement against Worst Case Volatilities”, Journal de la Société Française de Statistique, Vol. 141, No. 1-2, 2000 (co-authored with M. Bossy, F. Lhabitant, N. Pistre, D. Talay and Z. Zheng).
- “Do Newly Listed Derivatives Affect the Market Risk Premia in a Thin Stock Market?”, European Finance Review, Vol. 4, 2000, pp. 97-127, (co-authored with N. Clerc).
- “Recovery Risk in Stock Returns”, Journal of Portfolio Management, Vol. 27, No. 2, Fall 2000 pp. 22-31, (co-authored with A. Agkun).
- “A Large Deviation Approach to Portfolio Management”, International Journal of Theoretical & Applied Finance, Vol. 3, No. 4, 2000, pp. 617-639, (co-authored with P. Barès, R. Cont, L. Gardiol and S. Gyger).
- “Rethinking the Quality of Risk Management Disclosure”, Derivatives Use, Trading and Regulation, Vol. 5, No. 3, 1999, pp.248-282
- “Are Investors sensitive to the Quality and the disclosure of Financial Statements?”, European Finance Review, Vol. 3, No. 2, 1999, pp. 131-159, (co-authored with B. Caramanolis, L. Gardiol and N. Tuchschmid).
- “Interest Rate Risk : An Overview”, Journal of Risk, Vol. 1, No. 3, 1999, pp. 37-62, (co-authored with F. Lhabitant, N. Pistre and D. Talay).
- “A Theoretical Analysis of the Liquidity Risk Premium Embedded in the Prices of Voting and Non-Voting Stocks”, Journal of Corporate Finance, 1999, pp. 209-225, (co-authored with N. Beiner).
- “The Investment Policy and the Pricing of Equity in a Levered Firm: A Reexamination of the Contingent Claims Valuation Approach”, European Financial Journal, Vol. 5, 1999, pp. 95-107, (co-authored with M. Chesney).
- “Options, Futures and Stock Market Interactions: Empirical Evidence from the Swiss Stock Market”, Review of Derivatives Research, Vol. 2, No. 1, 1998, pp. 59-86, (co-authored with M. Bruand).
- “Forecasting Stock Market Volatility: Does History Matter?”, European Financial Management, Vol. 4, No. 3, November 1998, pp. 293-319 (co-authored with K. Adjaoute and M. Bruand).
- “Are Liquidity and Corporate Control Priced by Shareholders? Empirical Evidence from the Swiss Dual Class Shares”, Journal of Corporate Finance, Vol. 3, 1997, pp. 299-323, (co-authored with L. Gardiol and N. Tuchschmid).
- “Risikokontrolle und Regulierung der derivativen Finanzmarkte aus ökonomischer Sicht
- “, Revue de Droit Suisse, Vol. 137, 1996, (co-authored with H. Zimmermann).
- “Long Term Options on the Swiss Market Index and Portfolio Insurance Strategies”, Derivatives Quarterly, Vol. 3, Nr. 1, 1996, (co-authored with H. Zimmermann and S. Tolle).
- “Analyzing and Monitoring Derivatives Risks - Part 2”, Derivatives Use, Trading and Regulation, Vol. 2, No. 2, 1996, (co-authored with H. Zimmermann).
- “Analyzing and Monitoring Derivatives Risks: An Economic Perspective”, Derivatives Use, Trading and Regulation, Vol. 2, No. 1, 1996, (co-authored with H. Zimmermann).
- “State Space Symmetry and Two Factor Option Pricing Models”, Advances in Futures and Options Research, Vol. 8, 1995, (co-authored with M. Chesney).
- “Arbitrage Trading and Index Option Pricing at Soffex: An Empirical Study Using Daily and Intradaily Data”, Finanzmarkt und Portfolio Management, Vol. 9, No. 1, 1995, pp. 35-60 (co-authored with M. Chesney and H. Loubergé).
- “The Impact of Investment Constraints on Portfolio Performance Measurement: The Power Utility Function Case”, Financial Review, Vol. 30, No.2, May 1995, pp. 243-273 (co-authored with N. Tuchschmid).
- “Analytical Solution for the Pricing of American Bond and Yield Options”, Mathematical Finance, Vol. 3, No. 3, July 1993, pp. 277-294, (co-authored with M. Chesney and R.J. Elliott).
- “The Pricing of Crude Oil Futures Options Contracts”, Advances in Futures and Options Research, 1993, pp. 291-311 (co-authored with E. Schwartz).
- “Valuing Swiss Default-Free Callable Bonds: Theory and Empirical Evidence”, Journal of Banking and Finance, Vol. 14, 1990, pp. 649-672
- “Stochastic Convenience Yield and the Pricing of Oil Contingent Claims”, Journal of Finance, Vol. 45, No. 3, July 1990, pp. 959-976 (co-authored with E. Schwartz).
- “Les Modèles d’Equilibre de la Structure des Taux d’Intérêt: Un Essai de Synthèse”, Finance, Vol. 8, No. 2, 1987
- Model Risk: Concepts, Calibration and Pricing, Editor, Risk Books, London, 2000
- L’Evaluation des Options, Presses Universitaires de France, Paris, 1993
- Option Valuation: Analyzing and Pricing Standardized Option Contracts, McGraw-Hill, New York, 1991 Obligations et Clauses Optionnelles: Principes d’Evaluation, Presses Universitaires de France, Collection Finance, Paris, 1990
- “Sacred Values and Ethical Decision-Making”, in Sozialpsychologie und Oekonomie, edited by E. H. Witte and T. Gollan, Pabst Verlag, 2010 (co-authored with C. Tanner and A. Wagner).
- “Technical Analysis Techniques versus Mathematical Models: Boundaries of their Validity Domains”, Monte-Carlo and Quasi-Monte Carlo Methods, edited by H. Niederreiter and D. Talay, Springer Verlag, Berlin, 2006, (co-authored with E. Tanré, C. Blanchet-Scaillet, A. Diop and D. Talay).
- “Interest Rate Model Risk” in Asset and Liability Management: a Synthesis, edited by Risk Books, 1998 (co-authored with F. Lhabitant, N. Pistre and D. Talay).
- “A Comment on Derivatives and Privatization, Evidence from the Telecommunications Industry in Europe and Implications for Switzerland”, in Economic Policy in Switzerland, edited by P. Bacchetta and W. Wasserfallen, MacMillan Press LTD, London, 1997
- “Dual Class Share Firms and Seasoned Equity Offerings: Empirical Evidence From the Swiss Stock Market”, Advances in Finance, Investment and Banking Series, Volume: Empirical Issues in Raising Equity Capital, edited by Mario Levis, North-Holland, 1996, pp. 125-150, (co-authored with B. Caramanolis and N. Tuchschmid).
- “Valuation of Long-Term Oil-Linked Assets”, in Stochastic Models and Option values: Applications to Resources, Environment and Investment Problems, edited by D. Lund and B. Øksendal, North Holland, 1991, (co-authored with E. Schwartz) .
Office Telephone+41 22 379 89 83