95664 - GRENFIN - ASSET MANAGEMENT AND TRANSITION RISK

Learning outcomes

Climate change represents a significant risk for investors, in the form of both direct losses arising from extreme events, and asset repricing in the transition to a low carbon economy. Students will learn how transition risk impacts asset management. The course will first revise traditional portfolio management techniques and then illustrate how ESG (environmental, social and governance) metrics and other sustainability issues in general can impact asset allocation. Students will cover both theoretical models of asset allocation and a number of practical applications.

Course contents

• A recap of traditional portfolio theory
• Capital Asset Pricing Model, Arbitrage Pricing Theory and multifactor models
• Active portfolio management: Treynor-Black and Black-Litterman models
• Climate and finance: Physical risk and transition risk
• ESG-driven investment
• Climate-driven investment (decarbonization of a portfolio; green assets)
• Portfolio performance evaluation (traditional and sustainability-corrected measures)

Readings/Bibliography

Required readings:

Zvi Bodie, Alex Kane, Alan Marcus, Investments, 11th Edition, McGraw-Hill (selected chapters as indicated in the slideset).

Any other material posted on Virtuale.

Teaching methods

Lectures; Hands-on problem solving (Excel)

Assessment methods

Final exam: The final exam is a written, closed-book exam, which consists of a combination of exercises, true/false questions, and multiple-choice questions. A mock exam will be posted on Virtuale.

Assignment: Students may earn bonus points (to be added to the grade of the final exam) by submitting a group assignment (strongly recommended!). The assignment: a) will grant between 0 and 3 bonus points; b) is a groupwork (minimum 1, maximum 3 components) - it is the students’ responsibility to form their own group and the grade will be the same for all group components; c) will have to be handed in by email on the last session date. Detailed information on the assignment will be posted on Virtuale in the first weeks of the course.

The maximum possible score on the overall exam is 30 cum laude, in case all answers are correct, complete and formally rigorous. The grade distribution is as follows:
<18 failed
18-23 sufficient
24-27 good
28-30 very good
30 cum laude excellent

In case of an online exam, the exam will be run through Zoom and Exams Online (EOL). Detailed instructions on how to manage and hand in the online exam will be made available on Virtuale prior to the exam.

Teaching tools

Slides

Excel

Office hours

See the website of Mascia Bedendo