[MUSIC] Hi there and welcome to this portfolio and risk management course. In this course, we'll have different modules. The idea is that if you're rich, you become richer, and if you're not rich well, you'll become richer as well. And well, to see how we get to that point, Tony how are we going to proceed? >> So first we're going to address the problematic of portfolio construction from a rather quantitative perspective. We're going to look at how to use the effect of diversification in optimal way. And trying to attain a target expected return for a portfolio while maintaining a low level of risk. And we're going to do this by analyzing the impact of correlation between assets, between asset class, between stocks and bonds, between different stocks. How does correlation affect the risk of a portfolio? Okay, so with that we'll have a good theoretical view of the optimal portfolio construction. We're going to cover what is called the modern portfolio theory. And we're going to move from this theoretical. >> Before we move, sorry. Before we go from modern portfolio theory to next, I'd like to ask you one question. >> Sure. >> Do you believe that there is a free lunch in finance? >> Well there are no free lunch in finance as we know. This is the basis of most of the pricing parading for derivative. We know that there is a risk return trade off that you cannot reach a higher return without taking on more risks. But maybe there is something that is very very close to a free lunch and this is the effect of diversification. >> Okay, so. >> We'll see. >> So we'll find out. There might just be one free lunch and we'll find that out with you when we look at the model portfolio theory. And the step, the next after this were, as you mentioned, is to move to a strategic and tactical asset allocation. Many times, investors, they just talk about asset allocation and will tell you that, in fact that's not an asset allocation but two asset allocations you should be focusing on. A strategic one and a tactical one. >> We're also going to have a deeper look at the issues related to risk management. In particular we're going to see that we an go beyond the notion of standard deviation. We can focus on what we call downside risk, the risk of extreme losses. And we're going to discuss the financial tools that are used to manage this type of risk. And in particular, we are going to have an introduction to derivative securities and their use in risk management. [MUSIC]