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A Trader’s Guide to Portfolio Risk/Return Optimization


Objective: to learn about the real world treatment of position keeping in a manner to optimise risk-adjusted returns.  This requires an understanding of not only "fair value" principles, but also a close examination of static and dynamic strategies used to maintain positions and the implications to holding period returns for market makers, investors, and arbitrageurs including:

·      to provide a lucid explanation of methods used to analyses and trade various portfolios of securities and derivatives

·      the principle focus is on understanding trading strategies and the impact on position value

·      to understand the tenants of profitability on a risk-adjusted returns basis so as to apply trading and risk management principles consistent with objectives.

·      to understand ways of considering optimal risk/return strategies and then to apply theme consistently

·      to learn to trade (prop/directional, market making, and arbitrage)


·      market maker, prop traders, sales, support, structurers

·      management, treasurers,

·      Risk Management

Table of Contents

0) Product Review: Optional first day provides a review basic financial securities and derivatives (especially those that arise in the body of the presentation and analyses)

1) Review of Risk/Return: short review of basic risk and return concepts and emphasis on implication for various types of operations (e.g. market making, structuring etc)

2) Valuation and Market Dynamics (parts 1 and 2): introduction to the tools and concepts of product valuation under uncertainty.  Clear and working illustration of both the basic underlying models and assumptions, the techniques used for valuation/risk management, as well as implications for real-world application.  The same approach is then applied to introducing and analysing traditional mean-variance portfolio optimisation methods, and their costs/benefits in the real world.

3) Position Keeping (parts 1 and 2): This two part Chapter begins with considering the philosophy and methods of position keeping conventions as well as their implications for risk/return. Part 2 of the Chapter is a series of case studies applying all of the valuation, risk/return, and portfolio optimisation techniques presented.  The cases are focused on position optimisation of “single position portfolios” and have been structured to include an increasing level of valuation and position optimisation complexity, with extensive discussions on “reality impact”.  

The cases include not only simulated trading strategies, but also back testing of position P&L against real market data.  These include a bond position hedged in various ways, a swap position and swap spread position, several option position hedged with delta/delta-gamma/delta-gamma-rho/ as well as profile matching, a digital option hedged on sensitivity as well as "coupon matching" profile replication basis, a convertible bond hedged for each of the legs of the structure.

4) Analyses of position holding strategies:  Extension of the concepts and methods to consider the more general setting of an equity portfolio, as well as a broader class of optimisation techniques for position rebalancing, holding period rebalancing, and back testing 

5) Portfolio risk/return optimisation Additional analyses of considering the pros/cons of various mathematical optimisation techniques and their relevance and application to the portfolio management problems (making distinctions between optimal rebalance at a point in time vs. optimal rebalances over a holding period).

Note: this seminar can be easily extended to include the simulations and analyses of specific asset classes of interest to your portfolios.


1,100 Pages of comprehensive and extensively illustrated Handout Notes (see samples here)

Plus copies of relevant TG2 Books/e-Books

Note: Seminars can be tailored to your trading, risk, client, and systems needs.  Submit your needs, and/or "cut/paste" from other Seminars (see entire "standard" list HERE)

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Last modified: July 25, 2011