Fall 2016 Computer Science 458 Lecture 6: 9/19/2016

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Administrivia

Per piazza posting, Jieung Kim office hours: Monday and Wednesdays, 5:30 pm to 7:30pm. AKW 311.

Submit process.

We have the following guest speakers in the next few weeks:

Wednesday, September 21. Professor William Goetzmann, Yale School of Management.
Professor Goetzmann is an expert on a diverse range of investments, including stocks, hedge funds, real estate and art. His research also includes the history of finance in China, the origins of corporations and the history of stock market bubbles. Professor Goetzmann's work has been featured in the Wall Street Journal, the New York Times, Business Week, the Economist, Forbes, and Art and Auction. Professor Goetzmann has co-authored a number of books, including a bestselling book on Investment Management and a history of financial innovation book entitled The Origins of Value: The Financial Innovations that Created Modern Capital Markets, and is the author of a 2016 book on the history of finance, entitled Money Changes Everything. He has taught investment management, real estate, and portfolio management at the Yale School of Management for more than 20 years.
Monday, September 26. Dr. John Niccolai, Citadel. Dinner
Wednesday, September 28. Kayo Teramoto, Palantir. Dinner

Select students for dinners

Assignment 1

See Assignments

Lecture

Modern Portfolio Theory

Vocabulary

Statistics

volatility

variance [ var() ]

standard deviation [ sd() ]

mean [ mean() ]

random variable

correlation coefficient [ cor() ]

covariance [ cov() ]

Finance

stock = equity

bond = debt = fixed income

IPO = initial public offering

options (buy = call, sell = put)

derivatives (options, futures, forwards, swaps, credit default swaps, swaptions, mortgage backed securities [MBS], collateralized debt obligations [CDO's], CDO-squared)

Black Scholes option pricing model

efficient frontier

portfolio

asset classes (equity, fixed income, real estate, private equity, venture capital, real estate, timber, jewelry store receivables, rock band royalties)

time horizon

risk-free rate

transaction costs

Capital Allocation Line (CAL) == Capital Market Line (CML)

market portfolio

unsystematic risk

systematic risk

Capital Asset Pricing Model (CAPM)

Security Market Line (SML)

liquidity premium

Sharpe Ratio

Value at Risk (VAR)

Alpha

Examples

Indices excercise data (2007): xls csv R Rplots.pdf
Which investment would you prefer? How could you create a diversified portfolio from these investments that has a better risk/return profile?

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