UNIVERSITÉ DE GENÈVE

• Finance

• Selected topics in Asset Pricing and Portfolio Management

Objectives of the Course:
This Master’s Course focuses primarily on theoretical and empirical developments in continuoustime 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 continuoustime 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.

Course Outline:
The course will be structured into an introductory session and 6 main chapters covering the following topics:

1. 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.
2. 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
3. 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
4. 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
5. Credit risk and the pricing of credit sensitive claims
   – Ratings based models
   – Market based credit risk models
   – Applications
6. Further selected research topics
   – Alternative Investments: Hedge Funds
   – 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.

• Real Options

Objectives of the Course:
This advanced course is primarily intended for graduate students in the Master of Finance who wish to learn about the conceptual and empirical developments as well as the practical applications of real options' analysis. The course assesses the limitations of traditional capital budgeting techniques and shows the exibility and the value added of introducing real options analysis to solve rms' investment problems. It also introduces strategic considerations into the rms' investment decision making processes.

Course Outline:

1. Introduction
2. Limitations of the traditional NPV approach
3. An introduction to option pricing theory and to the Black and Scholes-Merton model
4. From the NPV approach to option pricing theory: a binomial example
5. The time to wait option and its applications to investment projects' valuation
6. Oil investments, time to wait and other managerial exibility options
7. Sequential investment decisions under uncertainty
8. The valuation of internet companies
9. The valuation of `horizontal options': the case of multinational rms' exibility
10. Is the real options' methodology applicable? Open issues and limitations
11. Conclusion

 

Organization of the Course:
The course will consist partly of lectures and partly of class room presentations and discussions of academic articles. You are expected to actively participate to the class room discussions and therefore to be prepared with the readings and other homework assignments. Case study applications of real options analysis will also be presented by invited guest speakers. There will be exercise sessions as well. Your performance in this course will be based on graded homeworks (50%), as well as on a final written examination (50%).

• Alper Odabasioglu
• Ramona Westermann

Research Publications:

• “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

Books:

• 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

Book Chapters:

• “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) .