Professional Course

Asset Allocation and Portfolio Construction

London Financial Studies, In New York City (+1 locations)
3 days
5,625 USD
Next course start
Please contact LFS See details
3 days
5,625 USD
Next course start
Please contact LFS See details
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Course description

Asset Allocation and Portfolio Construction is a 2-day program focusing on the latest trends in quantitative modeling for asset allocation and portfolio construction. By employing  new approaches that are a departure from static asset class investing to a dynamic process considering risk factors and regime changes.

Over the course duration, innovations suggested over the last ten years will be contrasted with current industry practices and highlighted by examples that offer insight into practical implementation. Six practical workshops simulate real-life key decisions in asset allocation and portfolio construction. Mathematical concepts are discussed and illustrated through the use of Excel spreadsheets that participants may take with them upon the course’s conclusion.

Upcoming start dates

1 start date available

Please contact LFS

  • Classroom
  • New York City

Who should attend?

The Modern Asset Allocation & Portfolio Construction course is beneficial to those involved in the financial sphere particularly professionals in the following roles:

  • Chief Investment Officers
  • Portfolio and investment managers
  • Fund and wealth managers
  • Treasury and liquidity managers
  • Risk managers
  • Traders
  • Strategists

Training content

Training topics for this Modern Asset Allocation & Portfolio Construction are divided by day and include:

Day One

Review of MPT and Traditional Asset Allocation Practice

The impact of the Financial Crisis on investment management

  • Review of Modern Portfolio Theory (MPT) - discussion of pre-course readings and questions
  • Issues of traditional asset allocation industry practice
    • Pseudo asset classes & diversification
    • Risk characteristics of fixed weight policy portfolios
    • Investment horizons and time-variable risk and return characteristics
    • Drivers of the success of rebalancing strategies
    • Risk perception: tolerance for interim risk versus terminal wealth risk

Workshop: Factor risk budgeting in a mean-variance framework

Overview Newer Approaches to Asset Allocation

  • The need for flexible asset allocations: moving from static portfolio risk to managing portfolio risk and return over time
  • Industry Trends: “Smart Beta” and “Factor Investing”
    • Overview and critical discussion their potential in portfolio construction
    • Common misunderstandings
    • Overview factor modelling approaches
    • Factor research versus factor investment issues
    • Factor-efficient portfolio construction


Expected Returns

  • Return-Based Strategies:
    • Passive & adaptive asset allocation
    • Overview dynamic asset allocation
    • Tactical asset allocation
  • Estimating expected returns
    • Scenario-based approaches to return estimation
    • Incorporating active views
    • Black/Litterman & Introduction to Bayesian statistics
    • Applied return forecasting techniques: scoring and ranking techniques
    • Dealing with forecast confidence

Workshop: A simple macroeconomic approach to risk and return estimation

Day Two

Risk Expectations & Risk-Based Investing

  • Risk-based investment strategies
    • Minimum variance
    • Risk parity
    • Risk budgeting
    • Equal-weighted
  • Time-varying risk characteristics
    • Autocorrelation & volatility clustering
    • Introduction to GARCH
    • Comparison of volatilities and correlation dynamics
  • Drivers of the success of low risk investment strategies
    • Market risk anomalies
    • Understanding the positive relationship between risk and return
  • Covariance matrix estimation
    • Sample covariance, EWMA & GARCH covariance
    • Manually tweaking the correlation matrix
    • Statistical factor models: PCA
    • Bayesian shrinkage estimators
    • Noise filtering with random matrix theory

Workshop: A Bayesian interpretation of risk-based investment strategies


Estimation Risk and Its Management

  • Implications of uncertainty in expected returns and risk
  • A scenario-approach to explicitly taking into account uncertainty in expected returns and correlations
  • The statistical nature of the efficient frontier: from confidence bands to the Resampled Efficient Frontier™
  • Distorted risk and return: the impact of illiquidity, survivorship bias
  • Robust portfolio construction approaches

Workshop: Developing a quantitative volatility trading strategy

Quantitative Portfolio Construction beyond Mean and Variance

  • Overview risk measures beyond volatility
  • Higher moments: their use in risk measurement and portfolio construction and estimation risk issues
  • CVaR and LPM/UPM optimization
  • Behavioural Portfolio Construction: Applying insights from Prospect Theory
  • Random portfolios & convex hulls
  • Understanding the advanced optimization algorithms: threshold accepting, simulated annealing, genetic optimizer
  • Multi-criteria portfolio optimization: Example sustainability efficient portfolios


Day Three

Selected Topics in Quantitative Analysis – Part I

  • Tail risk management
    • The normal distribution assumption
    • Non-normal distributions: Cornish-Fisher, NIG, Normal Mixtures
    • Risk Budgeting with Modified VaR/CVaR
    • Modelling fat portfolio tails with elliptical distributions

Selected Topics in Quantitative Analysis – Part II

  • Dependence & Correlation
    • Diversification is more than correlation: overdiversification and diworsification
    • Taking into accounting asymmetries in correlations: equities, bonds and gold
    • Introduction to copula theory
    • Applications of copula theory: Analysing bivariate “pure” dependency and simulating dependent non-normal return time series

Workshop: Decision making under uncertainty in a scenario framework


Model Risk Management

  • The reality of financial markets: is it risk or uncertainty?
  • Decision making under uncertainty: minimum regret, minimax, maximax & Hurwitz criteria
  • Methodological aspects in backtesting
  • The trade-off between estimation and model risk in applied quantitative modelling
  • Outlines of a model risk management framework



The cost of the Modern Asset Allocation & Portfolio Construction training course is available upon request.

Certification / Credits

London Financial Studies is registered with CFA and GARP Institute as an Approved Provider of continuing education programs. GARP & CFA Institute members attending this course are eligible for 24 CE/CPD credits.

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