Section on Risk management and investment management1. Traditional investment risk management
Return metrics (Sharpe ratio, Information Ratio, VaR, relative VaR, Tracking Error,Survivorship bias).
Implementing VaR.
Benchmarking asset mixes for pension liabilities
Risk budgeting
Tracking error
Setting risk limits.
Risk of alpha transfer strategies.
Risk management issues of pension funds.2. Hedge fund risk management
Risk-return metrics specific to hedge funds (Drawdown, Sortino ratio).
Risks of specific strategies (Fixed-Income Arbitrage, Merger Arbitrage, Convert Arbitrage,Equity Long/Short-Market Neutral, Macro, Distressed Debt ,Emerging Markets)
Asset illiquidity, valuation, and risk measurement.
The use of leverage and derivatives and the risks they create.
Problems in measuring exposures to risk factors (Dynamic Strategies, Leverage,Derivatives, Style Drift).
Correlations among hedge funds and between hedge funds and other assets.Core Readings;1. Pearson, Risk Budgeting
Chapter 2 - value-at-Risk of a Simple Equity Portfolio
Chapter 7 - Using Factor Models to Compute the VaR of Equity Portfolios
Chapter 11 - A Long-Short Hedge Fund Manager2. Leslie Rahl, Risk Budgeting: A new Approach to Investing (London: Risk Books, 2000)
Chapter 3 - Risk budgeting: managing active risk at the total fund level
Chapter 6 - Risk budgeting for pension funds and investment managers using VaR
Chapter 7 - Risk budgeting for active investment managers
Chapter 11 - Risk budgeting in a pension fund3. Noel Amenc, Veronique Le Sourd, Portfolio theory and performance analysis, (England, Wiley 2003)
Chapter 4 - The Capital Asset Pricing Model and its Application to performance Measurement, Sections4.1.1, 4.1.2, and 4.2.1 through 4.2.8., pp. 95-102, pp. 108-116
Chapter 6 - Multi-Factor Models and their Application to Performance Measurement
Chapter 8 - Fixed Income Security Investment4. Lars Jaeger, ed., The New Generation of Risk Management for Hedge Funds and Private Equity Investments(London: Euromoney Books, 2003)
Chapter 6 - "Funds of hedge funds" by Sohail Jaffer
Chapter 27 - "Style drifts: monitoring, detection and control" by Pierre-Yves Moix5. Virginia Reynolds Parker, ed., "Managing Hedge Fund Risk" (Risk Books, 2003)
Sound practices for hedge fund managers, 299-360
The Risk of Hedge Funds by Alexander M. Ineichen, 377-4526. Sohail Jaffer, ed., Funds of Hedge Funds, (London: Euromoney Books, 2003)
Chapter 17 - Risk control strategies, the manager's perspective", by Pierre-Yves Moix7. "Sifting Through the Wreckage: Lessons from Recent Hedge-Fund Liquidations", Mila Getmansky, Andrew W.Lo and Shauna X. Mei (November 14, 2004), 1 - 278. "The Risk in Fixed-Income Hedge Fund Strategies", David Hsieh and William Fung, Journal of Fixed Income, 12(2002), 6-279. "Empirical Characteristics of Dynamic Trading Strategies: The Case of Hedge Funds", David Hsieh and WilliamFung, Review of Financial Studies, 10 (1997), 275-302
