This document provides information about an investment risk management course taught by Louis Tremblay. It includes a biography of Louis Tremblay detailing his educational background and professional experience. The syllabus outlines the course content, schedule of topics to be covered, and evaluation methods which involve quizzes, a group project, and a final exam. The course will use tools like Excel, PowerPoint and Bloomberg.

1. 2324_FI_5_3_123_E
Credit & Market Risks
2324_FI_5_3_124_E
Investment Risk Management
Course 1 :
Overview of financial markets

3. 3
Mandatory !
OK for CFA & FRM
Calculator

4. Degree Year obtained
4
Enrolled Actuary (USA) 2000
Fellow Society of Actuaries (USA) 2001
Fellow Canadian Institute of Actuaries (Canada) 2001
Chartered Financial Analyst (CFA) 2002
Institut des Actuaires (France) 2021
FRM Candidate Level I obtained in 2021
Actuarial Science (Universite Laval – Quebec) 1995
Degree Year obtained
Bio Louis Tremblay

5. Period Company Location Role
5
1996 – 1998 Aon Hewitt Montreal Actuary – pension funds (actuarial liabilities)
1998 – 2001 Aon Hewitt New Jersey
Actuary – post-retirement benefits (other than pensions)
liabilities accounting
2001 – 2005 Aon Hewitt Montreal Actuary – pension funds (actuarial liabilities)
2005 – 2008 Caisse de dépôt et placement du Québec Montreal Business development
2007 – 2010 Université du Québec à Montréal Montreal Teacher, corporate finance
2008 – 2010 Aon Hewitt Montreal Investment consultant & ALM
2011 – 2020 Optimum Group Paris Chief Investment Officer (CIO) & General Manager (COO)
2020 – Institut Européen de Synergologie Paris Training
2021 –
Top Finance & NEOMA & Audencia &
other institutions
France Teacher : Stats, CFA, FRM, Data visualization, Power BI, …
…Bio Louis Tremblay

6. …Bio Louis Tremblay

7. 7
1. Consumer staples
2. Consumer discretionary
3. Health care
4. Industrials
5. Energy
6. Financial services
7. Utilities
8. I.T.
9. Materials
10. Communications
11. Real estate
Global Industry Classification
Standard (GICS)
Defensive sectors
Aerospace
Personal care products
Automotive
manufacturers
• 11 sectors !
Competition

8. 8
• Choose 5 stocks (in CAC40)
• The winner at the end of the semester
1. Air Liquide Materials
2. Airbus Industrials
3. Alstom Industrials
4. ArcelorMittal Materials
5. AXA Financial
6. BNP Paribas Financial
7. Bouygues Industrials
8. Capgemini I.T.
9. Carrefour Consumer staples
10. Crédit Agricole Financial
11. Danone Consumer staples
12. Dassault Systè I.T.
13. Edenred Financial
14. Engie Utilities
15. EssilorLuxottic Healthcare
16. Eurofins Scient Healthcare
17. Hermès Consumer cyclical
18. Kering Consumer cyclical
19. L'Oréal Consumer staples
20. Legrand Industrials
21. LVMH Consumer cyclical
22. Michelin Industrials
23. Orange Communications
24. Pernod Ricard Consumer staples
25. Publicis Communications
26. Renault Consumer cyclical
27. Safran Industrials
28. Saint-Gobain Industrials
29. Sanofi Healthcare
30. Schneider Elec Industrials
31. Société Général Financial
32. Stellantis Consumer cyclical
33. STMicroelectro I.T.
34. Teleperformanc Communications
35. Thales Industrials
36. TotalEnergies Energy
37. Un.-Rod.-Westfi Real Estate
38. Veolia Industrials
39. Vinci Industrials
40. Worldline Communications
…Competition

9. City Date Chapters Type
9
Rouen (123) 11.01
• Bank’s economic capital vs credit risk
• Factors used to calculate economic capital for credit risk:
probability of default, exposure & loss rate
• Expected loss (EL) & Unexpected loss (UL)
Présentiel synchrone
Rouen (123) 24.01
• Variance of default probability (binomial distribution)
• UL for a portfolio & UL contribution of each asset
• How economic capital is derived
• Model credit loss distribution
Présentiel synchrone
Rouen (123) 24.01
• Experts-based approaches, statistical-based models &
numerical approaches to predicting default
• Rating migration matrix & probability of default…
• Rating agencies’ assignment methodologies
Présentiel synchrone
Syllabus
Rouen (124) 09.02 • Overview of equities markets & explanation of Project Présentiel synchrone
Rouen (123) 13.03
• Rating agencies’ assignment methodologies
• Relationship between rating & probability of default
• Agencies’ ratings to internal experts-based rating systems
• Structural & reduced-form approaches to predicting
default
Présentiel synchrone

10. City Date Chapters Type
10
Rouen (123) 13.03
• Merton model & default probability & distance to default
• Z-score & linear discriminant analysis (LDA) to classify a
sample of firms by credit quality
• Logistic regression model to estimate default probability
Présentiel synchrone
Rouen (124) 15.03 • ...Bloomberg & equities markets Présentiel synchrone
Rouen (123) 26.03
• Exponential vs Poisson distributions
• Hazard rate & probability functions for default time &
conditional default probabilities…
• Unconditional & conditional default probability
Présentiel synchrone
Rouen (123) 02.04
• Risk-neutral default rates from spreads
• PROs of CDS market to estimate hazard rates
• CDS spread used to derive a hazard rate curve
• Spread risk & measurement using the mark-to-market and
spread volatility
Présentiel synchrone
…Syllabus
Rouen (123) 14.03
• Representing credit spreads
• Compute one credit spread given others when possible
• Spread ‘01
• Default risk & Bernoulli trial
Distanciel

11. City Date Chapters Type
11
Rouen (123) 09.04
• Extreme value theory (EVT) & risk management
• Peaks-over-threshold (POT) approach
Présentiel synchrone
Rouen (123) 10.04 • Generalized extreme value & POT
• Multivariate EVT for risk management
Distanciel
Rouen (124) 03.04 • ...Bloomberg & equities markets Présentiel synchrone
…Syllabus
Rouen (123) 05.04
• Bootstrap simulation & coherent risk measures
• Historical simulation using non-parametric density
estimation
Présentiel synchrone
Rouen (123) 09.04
• Age-weighted, volatility-weighted, correlation-weighted &
filtered historical simulation approaches
• PROs & CONs of non-parametric estimation methods
Présentiel synchrone

12. City Date Chapters Type
12
Rouen (123) 12.04
• Backtesting & backtesting VaR models
• Type I & Type II errors
Présentiel synchrone
Rouen (123) 15.04
• Conditional coverage in backtesting framework
• Basel rules for backtesting
Présentiel synchrone
Rouen (123) 16.04 • Case studies for Credit Risk & Market Risk Asynchrone
Rouen (124) 17.04 • Measurement of performance Présentiel synchrone
Rouen (124) 19.04 • Review exercises Présentiel synchrone
…Syllabus

13. 13
• Tools used :
• Excel
• Power Point
• Bloomberg
…Syllabus

14. Evaluation Weight Information
14
Quizzes 50% • Unannounced
Final exam (2 hours) 50% • Centre des examens (after Course 10)
…Syllabus
123
Project 40% • Groups of 3 students
Final exam (2 hours) 60% • Centre des examens (after Course 10)
124

15. 15
• You need to create a Bloomberg account
• Rouen :
• Room G127
• Access code 434211
• Reims :
• Room 1A055
• Access code C6395A
• Once you are in the front of a Bloomberg terminal, create your account
Bloomberg

16. 16
…Bloomberg

17. 17
…Bloomberg
First time only

18. 18
• France : 600 asset managers (source : H24)
Asset management

19. 19
• ...France : 600 asset managers
• https://fundsmagazine.optionfinance.fr/dossiers-de-la-redaction/les-50-
societes-de-gestion-qui-comptent-selection-2022.html
BNP Paribas AM
Eleva Capital
JP Morgan AM
Lazard Frères Gestion
Pictet AM
Tikehau Capital
Allianz Global Investors
Amiral Gestion
Amundi
Aviva Investors France
AXA IM
Axiom AI
BFT IM
BNY Mellon IM
Candriam
Carmignac
Comgest
CPR AM
Crédit Mutuel AM
DNCA Finance
La Financière de
l’Echiquier
La Française
Mandarine Gestion
M&G
Mirova
Montpensier Finance
Morgan Stanley IM
Natixis IM
Oddo BHF AM
Rothschild & Co AM
Europe
DWS
Ecofi
Edmond de Rothschild
AM
Eres Gestion
Fidelity International
Gemway Assets
Generali Investment Par
tners
Groupama AM
IM Global Partner
La Banque Postale AM
Robeco
Sanso IS
Schroders
Sycomore AM
Syquant Capital
Thematics AM
Tocqueville Finance
UBS La Maison de
Gestion
Varenne Capital
Partners
Vega IM
…Asset management

20. 20
• ...France : 600 asset managers
…Asset management
Source : Amundi

21. 21
$2.4 T $2.1 T $1.1 T
• Active vs passive investment strategies àPassive management has been gaining
market share over time vs active
management
àPassive management’s share of industry
revenues < its share of AUM
…Asset management

22. 22
! 𝐖𝐞𝐢𝐠𝐡𝐭𝐬𝐢 ∗ 𝛍𝐢
𝛔 = #𝑾𝐞𝐢𝐠𝐡𝐭𝐬𝐢
𝟐
∗ 𝛔𝐢
𝟐
+ 𝟐 ∗ 𝐂𝐨𝐯𝐢𝐣 ∗ 𝐖𝐞𝐢𝐠𝐡𝐭𝐢 ∗ 𝐖𝐞𝐢𝐠𝐡𝐭𝐣
• Traditional vs alternative investment strategies
…Asset management
Markowitz !

23. 23
• Typical job description
• Asset Manager Responsibilities :
Source : https://www.betterteam.com/asset-manager-job-
description#:~:text=Asset%20managers%20trade%2C%20manage%2C%20and,increase%20asset%20value%20and%20revenue.
• Meeting with clients, determining needs & requirements, providing strategic advice & managing their assets accordingly
• Preparing risk analyses & financial & investment reports
• Creating, organizing & managing client portfolios
• Monitoring asset performance & recommending corrective measures
• Developing strategies to increase ROI and minimize risk factors & losses
• Reviewing policies & making recommendations for adjustments
• Researching relevant markets & identifying trends & patterns
• Collaborating with the AM team, company analysts & senior executives
• Liaising & negotiating with fund directors, property managers, attorneys, auditors, etc.
…Asset management

24. 24
• ...Typical job description
• Asset Manager Requirements :
Source : https://www.betterteam.com/asset-manager-job-
description#:~:text=Asset%20managers%20trade%2C%20manage%2C%20and,increase%20asset%20value%20and%20revenue.
• Degree in business, finance or related field
• Previous experience as an analyst or asset manager
• Proficiency in Microsoft Office & industry-related software
• Strong financial background with experience in financial modeling
• Strategically minded with strong analytical & problem-solving skills
• Excellent communication & interpersonal skills
• Excellent organizational & managerial skills
• Attention to detail
• Skilled negotiator
…Asset management

25. 25
• Roles
• Front-office : investment decisions & execution - relationship with brokers
• Back-office : trade reconciliation – relationship with Bank
• Middle-office :
• In between front & back !
• The way I see it : derivatives pricing, acute problems in the back-office, liaison between front & back-office
• Compliance :
• Handles relationship with Commissaires aux comptes, Autorité des marchés financiers & other third-parties
• Operational, new requirements from AMF, …
• Sales & marketing :
• Handles reporting as well
…Asset management

26. • $100 are invested at the end of 2020 :
• Portfolio manager A does very well when stock markets are booming, and poorly when markets
are falling
• Portfolio manager B does OK when stock markets are booming, and is not that bad when
markets are falling
• Which one should you choose ?
• Portfolio manager A is out of business
26
2021 2022 2023 2024 2025 2026 2027
S&P500 +20% -20% +20% -20% +20% -20% +20%
PM A +25% -25% +25% -25% +25% -25% +25%
PM B +15% -15% +15% -15% +15% -15% +15%
$100 at
12.31.27
106.17
103.00
107.41
When looking at past returns, never use the arithmetic
average à use geometric average instead !
…Asset management

27. 27
…Asset management

28. 28
Returns (3 years)
𝛔 (volatility or standard deviation)
(3 years)
Drawdown (3 years)
…Asset management This is my business card

29. 29
Performance are NET of fees
(unlike North America)
Performances > 1 year are
cumulative (unlike N.A.)
…Asset management

30. • Challenges :
• Strategic :
• Find value !
• SRI / ESG
• Cryptos
• Big Data / Machine Learning à Power BI, Python, Jupyter, ...
• Compliance
• Tactical :
• Inflation, Ukraine, Trump in 2024...
30
…Asset management

31. 31
Trends in Asset allocation
Alternatives : 23%
Cash
3%
Fixed income
31%
Equities
43%
Real estate - Equity
9%
Real estate - Debt
3%
Private Equity
7%
Infrastructure
3%
Hedge funds
1%
Caisse de dépôt et placement du Québec -
Asset allocation 12.31.2003

32. 32
…Trends in Asset allocation
Alternatives : 45%
Main risks : poor returns
& cut in dividends
Main risks : interest
rate risk & default
Main risk : illiquidity
Fixed income
30%
Equities
25%
Real estate - Equity
12%
Private Equity
20%
Infrastructure
13%
Hedge funds
0%
Caisse de dépôt et placement du Québec -
Asset allocation 12.31.2022

33. 33
Varia
• You are at a TV show. There are 3 doors : behind one door is 1 M$ ; behind
each of the 2 other doors, there is a dog (so 2 dogs in total)
• You pick a door, and the host (he knows what's behind the doors) opens
another door with a dog (mandatory)
• He then ask : “Do you want to switch door?”
Should you?
• Yes
• No

34. Note : some of the study material comes
either from CFA Institute, Schweser or
GARP