advance valuation of bonds and security
M043LON Mid-term Assignment (40%)
You must prepare as part of an advanced investment plan, a well-defined and diversified(i.e.
by geography, sector, type) combination of no less than seven assets (equity, bonds, and any
other alternative investments) with proper allocation justification. Use a comprehensive
range of performance measures as indicators of quality to such investments.
Compute correlation and variance-covariance matrices as well as complete micro and
macro security forecasts. State your philosophy in terms of your attitude to risk and your
preference for an active or passive form of management of the portfolio you created. Justify
Use excel and an advanced optimizer or other equivalent optimizing methods, such as HL,
and/or Lagrange, and/or Utility maximization, etc., techniques or tools to solve for the
capital allocation, further on identify the minimum and maximum variances and discuss the
results, and where appropriate the usefulness of the methodologies, techniques and models
The analysis, interpretations, and the theoretical treatment should be done in the context of
both passive and active portfolio framework, that should include your “beliefs”, “views”, and
should be stylized properly. It is important that both Markowitz and William Sharp models
are used in your analysis, valuation, and interpretation.
Assume the role of a security analyst and portfolio manager, and as such you must consider
the portfolio’s sensitivity to market risk, as measured by its beta in the case of equity, and
the portfolio’s sensitivity to interest rate risk, as measured by its duration in the case of
In the report, you should address all of the CW requirements, and you are expected to have
your own view of what is expected and how much weight to give any particular requirement
element, however you will need to plan your answers carefully, in order to provide a focused
answer to the questions, within the word-limit.
The report should show that you have developed your understanding of the relevant materials
in this module, therefore it is necessary that you, not only get correct numerical answers, but
also explain what is being calculated, how it is calculated, the underlying theory, assumptions,
the results at appropriate stages of the calculation, and interpretations of the final answers.
You should justify relevant theories used, their relevance, where possible, demonstrate your
understanding of them, by using simple equations or diagrams, or some other illustrations and
in presenting your arguments, you should also comment on possible strengths, weaknesses and
Graphs, tables, panels, and other illustrations, should NOT be copied from books in a
“wholesale” fashion, instead they but should be recreated with justified data selected on
appropriate and relevant ranges.
You should justify any conclusion you reach on the basis of evidence, cross-referenced to, or
quotation from, the course lecture notes, seminar material, textbooks, other course readings,
or any other reliable source you choose to use. A report without proper referencing will not
You should make use of relevant articles, journals, white papers, books in your research
(which you should clearly identify) to support your work. You should also explain the
investment strategy you have followed. Your strategy statement should include a statement
on your attitude to risk, your own “views”, identifying the theoretical basis for your
Your advanced security valuation must make used of models and tools with advanced
features and should include measures of performance and comparisons with appropriate
indices. Justify the advanced features of the methodologies, models and techniques used and
The length of the final paper should be between 2500 and 3000 words, excluding exhibits,
should be referenced, and contain a list of the sources of (i) your evidence and (ii) the theory
that underpins your analysis and commentary. Failure to do so is unprofessional and
fraudulent, and will result in a failing grade for the report and possibly the course
Report Structure (suggestive)
Ï Table of Contents
Advanced Investment Plan
Information Acquisition and Forecasting
Advanced Portfolio Analysis and Valuation
Advanced Optimization Methodologies, Tools and Techniques
Detailed allocation of marks can be found in the rubrics of this assignment.
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