THE FINANCIAL SYSTEM – INTRODUCTION

• What is the Financial System? Why does it exist?
• Key Players in the Financial System
• Specialization within the financial system
• Principles of pricing financial instruments
• Is the Market Efficient?
• Efficient Market Hypothesis
• Counterclaims to Market Efficiency
• References

MAJOR ASSET CLASSES AND MARKETS

• Major types of instruments
• Bonds (Fixed Income)
• Loans
• Stocks (Equities)
• Hybrid Instruments
• Derivatives/ Synthetic Instruments
• Major asset classes
• Fixed Income
• Equities
• Commodities
• Currencies
• Emerging Markets
• Links between different markets

THE ANATOMY OF THE SELL SIDE

• Structure of a Bulge Bracket Sell-side Firm
• Investment Banking Division
• Capital Markets
• Prime Brokerage
• Support Functions
• Basic Market Microstructure
• How do instruments trade?
• Exchange-Traded Markets
• Over-the-Counter (OTC) Markets
• Trade Date and Settlement Date
• Further thoughts

OVERVIEW OF BUY SIDE FIRMS

• What do buy-side firms do?
• Investment Styles
• Investment Product Offerings
• Mutual Funds
• Exchange Traded Funds (ETFs)
• Alternative Investments
• Liquid Alts
• Separately Managed Accounts
• High-Frequency Algorithmic Trading Products
• Sell-side Index Swaps
• Capital Owners
• Retail Investors
• Institutional allocators
• Intermediation – Consultants, OCIO, Fund of Funds
• Process of picking an institutional manager
• Working at a buy-side firm

INDICES, BENCHMARKING, RISK MODELS AND PERFORMANCE EVALUATION

• Indices – What are they? Why do we need them?
• Criteria for a Good Index
• Examples of Popular Indices
• Efficiency of index investing
• Benchmark Indices vs Strategy Indices
• Index Mechanics and Terminology
• Measuring Risk – Risk Models
• Risk definition
• Risk factors – Factor-based Risk Models
• Risk Measures
• Role of Risk Models in Portfolio Construction
• Performance Evaluation
• Performance Evaluation Measures
• Performance Attribution
• Portfolio Management Summary

TOPICAL ISSUES IN CAPITAL MARKETS

• Market Microstructure
• FinTech
• Big Data in Investment Management
• Crowdfunding
• Marketplace Lending
• Robo-advisors
• Quantitative Trading
• Factor-based investing
• Blockchaining
• Payment Mechanisms and Cryptocurrencies
• Central Bank Policy
• Regulation
• Compliance Software
• References

INTRODUCTION TO BONDS – TREASURY PRICING AND INSTITUTIONAL DETAILS

• Treasuries – The Basic Idea
• What is a bond?
• Our first example – a simple bond and its yield
• Treasury quoting convention
• U.S. Treasury Auction Mechanics
• When–issued Market
• Financing Treasury Purchases – the Repo Market
• Microstructure of the US Treasury Market
• The Simple Example Re-visited – SPOT CURVE AND ACCRUED INTEREST
• Different discount rates for different payment dates – the spot curve
• Bootstrapping – from bond prices/ yields to spot rates
• Bond prices on non–coupon payment dates – Accrued Interest
• Forward curves
• Expected patterns in bond price movements
• Pull to par
• Rolling down the yield curve
• Summary

FACTORS AFFECTING TREASURY BOND PRICES

• Reviewing Bond Price–Yield Relationship
• Price–yield graph
• Choosing between bonds
• Quantifying Interest Rate Risk in Treasuries
• Duration
• DV01
• Interest Rate Risk of Portfolios of Treasury bonds
• Hedging Interest rate risk – applications of duration
• Immunization
• Yield curve movements – parallel versus non-parallel movements
• Convexity
• Further comments

FURTHER TOPICS IN INTEREST RATE MARKETS

• Why do yields / interest rates move?
• Central Bank Policy
• Business Cycle
• Economic Variables and News Releases
• Inflation Expectations
• Term Structure of Interest Rates – Theories of the Shapes of yield curve
• Investing in Treasury Markets – Expressing views using Treasuries
• Leverage
• Carry Trades
• Steepeners and Flatteners
• Relative Value Trades
• Other Interest Rate sensitive instruments
• Treasury Futures
• TIPS (Treasury Inflation Protected Securities)
• LIBOR-based instruments
• EuroDollar Futures
• Interest Rate Swaps
• ETFs related to Treasury Markets
• Options on the above securities
• Conclusion

OTHER FIXED INCOME MARKETS

• US Mortgages
• Prepayments
• The TBA Market
• Valuing MBS
• Mortgage Market Liquidity
• Municipal Bonds
• Municipal Bond Classifications
• High-Yield Munis
• Primary and Secondary Muni Markets
• Corporate Credit
• Capital Structure
• Bankruptcy
• Quantifying Default Risk
• Credit Rating Agencies
• Important Elements of Credit Analysis
• Credit Instruments
• Market Dynamics and Liquidity
• Credit Analytics
• Quantitative Credit
• Investing in Credit
• Securitization
• Securitization Overview and Motivations
• Why does Securitization Work?
• Different Types of Securitization Structures
• References

EQUITIES - VALUATION

• What is equity?
• Equities and the Capital Structure – Role of Leverage for a CORPORATION
• Capital structure theories – Tax benefit of Debt
• Corporate Governance
• Valuing Equities
• Setting the Stage
• Equity Valuation Models
• Equity Valuation in Real Life
• Role of Macro Analysis in Equity Valuation
• Fundamental versus Quantitative Investing
• Value Investing
• Non–traditional data sources
• Role of Algorithms
• Thematic Investing
• Model Robustness
• Shorting Equities
• Equity Instruments
• Forwards
• Futures
• Equities as an asset class – microstructure of equities
• Current Status

PORTFOLIO THEORY, ASSET ALLOCATION AND FACTOR MODELS

• Expected Return and Risk of an Equity Stock
• Investors’ risk–return tradeoffs – utility function and indifference curves
• Diversification – the core IDEAS
• Building on Diversification – Portfolio Theory and Efficient Frontiers
• Case 1: Optimal Portfolio with One Risky Asset and the Risk Free Asset
• Case 2: Optimal Portfolio with Multiple Risky Assets and One Risk–Free Asset
• When does adding a new security improve a portfolio’s risk characteristics?
• Capital Asset Pricing Model (CAPM)
• Assumptions of the CAPM
• Relevance of the CAPM
• Interpreting the CAPM
• Estimating Betas (and Alphas) in the CAPM
• Introduction to Factor Models
• Arbitrage Pricing Theory Overview
• Risk management in equity portfolios
• Portfolio construction techniques
• Markovitz Mean-Variance Optimization
• Black–Litterman Model
• Risk Parity

INTRODUCTION TO OPTIONS

• What is an option? Basic terminology
• Some simple examples – call and put options
• Options trading – Mechanics
• Using options in trade construction
• Directional trades with Call and Put options
• Volatility Trades with Straddles and Strangles
• Covered call
• Protective Puts
• Call spread, Put spread, Calendar spread
• Put–call parity
• Exotic Options

OPTIONS VALUATION

• Modeling stock prices – a binomial model
• Call Option – Pricing mechanics
• Further details
• Multi-period models
• American Options
• Black Scholes formula
• Graph of Call Option Prices before Expiration – some more Greeks
• Implied Volatility and Realized Volatility
• Drawbacks of Black–Scholes – Modifications
• Relevance of the Imperfect Black Scholes Formula
• Volatility–based option trades
• VIX
• Summary

ANNEXURES

• Return Concepts and Calculations
• Simple & Compound Returns
• Time Value of Money
• Net Present Value (NPV)
• Internal rate of Return (IRR)
• Introduction to Financial Statements – Concept of Capital Structure
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Footnotes and Disclosures
• Using the Information in Financial Statements – Metrics, Forecasting, Ratio Analysis, Management Views
• Macroeconomics Primer
• Measuring Output (GDP) Growth
• Macroeconomic Theory and Models
• Currency Markets
• Practical Macroeconomic Considerations for Finance Professionals
• Major US Macroeconomic Data Series
• Basic Statistics and Data Analysis
• Summarizing Data
• Probability and Distributions
• Multivariate Analysis – Regressions
• Introduction to the Bloomberg Software/ Terminal