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Department of Finance

University of Illinois at Urbana-Champaign

Professor Mao Ye Fin 511 Spring 2017
Portfolio Management

Office Hours: Mondays 3:30-4:30 P.M.
343K Wohlers Hall; phone 217-244-0474

TA: Jingwen Hua (
TA Office Hours: Wednesday 12:45-1:45pm and Friday 12:45-1:45pm in BIF

This course intends to give a thorough grounding in portfolio management for students who are already familiar
with financial markets. The first half of the course will cover Markowitz portfolio optimization, the Capital
Asset Pricing Model, and the Arbitrage Pricing Theory. The lectures will cover the theories, and the problem
sets will teach you how to apply these theories to manage portfolios.
The second half of the course will deal with recent developments in portfolio management. We will be spending
several weeks discussing what does and does not deliver extraordinary investment performance. We will also
deal with special techniques employing derivatives to enhance performance. The final part discusses the
evaluation of the performance of funds and fund managers and the impact of transaction costs.
This course is designed to help you solve real-world problems. We have two types of assignments. One type is
based on Chartered Financial Analyst (CFA) test questions or questions from Wall Street interviews. The other
type is a computer-based exercise that asks you to build portfolios and evaluate their performance. This
assignment will be completed in groups. You will put together two trial portfolios using UISES.
The TA for this class is Jingwen Hua. She will be helping me with the administration of the investment
simulation project and homework grading. You can email her if you have questions about homework.
Required Textbook:
Zvi Bodie, Alex Kane, and Alan J. Marcus. Investments. 10th edition (cited as BKM).

1) The course will use COMPASS 2G.
2) Assignments include problem sets (PS) and investment simulation projects (IS). Problem sets must be
individual work. Investment simulation projects may consist of up to 4 people in my course (one person groups
are not unusual in previous years).
3) Most of the problems on the midterm and final will be similar to the problem sets, with the addition of some
multiple choice questions.


in class. you may not share solutions with non-group members. section 31. Also. you may not obtain assistance from people who are not enrolled in the class. However. Cheating. "Sharing solutions" includes letting people have or see a copy of your spreadsheets.’ 2 . or other violations of academic integrity will not be tolerated. ‘Academic Integrity. plagiarism. or written solutions. Students should consult the Code on Campus Affairs. no make-up midterm) Final Exam: 40% (Time to be announced by the university) Grading: 97-100 A+ 93-96 A 90-92 A- 86-89 B+ 81-85 B 77-80 B- 74-76 C+ 70-73 C 65-69 C- 60-69 D <60 F 5) Academic Integrity: Some of the assignments in this class are group work. memoranda. It is expected that all students enrolled in this course will behave in an ethical and professional manner. Requirements: Class Participation 5% Investment Simulations 15% Problem Sets 15% Midterm: 25% (February 22.

15 and problem solving 15 Term structure of interest rates Options I BKM ch. 7 4 Sharpe’s single Index Model BKM ch. 15BKM ch. Choice BKM ch. 11BKM ch. 21 17 Options II Review and problem solving BKM ch. 27 22 Guest lectureAdvanced topics 23 International diversification BKM ch. 21 18 Futures and other derivatives BKM ch. 25 24 Advanced topics 25 Advanced topics 26 Pull your trades for your investment simulation project 27 Review and problem solving 28 Presentations  The schedule for lectures is subject to adjustment due to the availability of the Market Information Lab and guest speakers. 6. 24 20 Guest lecture: Doug Hoffman. COURSE SCHEDULE Readings in BKM Lecture Topics based on 10th edition 1 Single asset statistics BKM ch. 20BKM ch. 5 2 Expected utility and risk aversion. 9 6 The Capital Asset Pricing Model II BKM ch. 15 rates 14 Bond Term structure of interest rates Review BKM ch. BKM ch. 7. 10BKM ch.13 Fama-French Three-Factor Model Midterm Cover the material until efficient markets 10 Behavioral finance BKM ch. 3 . 20 16 Options I Options II BKM ch. appendix 7B under one risky asset 3 Markowitz Optimization BKM ch.1. 14 12 Enter your trades for the investment simulation 13 Advanced topics Term structure of interest BKM ch. 8 5 The Capital Asset Pricing Model I BKM ch.12 11 Market Information Lab section Bond BKM ch. 23 19 Performance evaluation BKM ch. 14BKM ch. 11 8 Efficient markets Behavioral finance BKM ch.12 9 Empirical evidence on security returns. 9 7 Arbitrage pricing theory Efficient markets BKM ch. CBOE 21 Asset allocation BKM ch.