This assignment is structured in two chapters. Firstly, a summary of foreign exchange products: FX forwards, FX futures, FX options and currency swaps. Secondly, drawbacks and limitations of the Markowitz portfolio theory.

A summary of mean-variance portfolio theory limitations studied are:

  1. It does not protect against improbable black swan events,
  2. based on historical data that doesn’t guarantee future returns,
  3. challenging to identify uncorrelated markets due to financial globalization,
  4. excludes transaction and taxation cost,
  5. might not represent investor utility function,
  6. prone to errors due to input sensitivity,
  7. insensitive to fat-tailed and sked returns,
  8. difficult to adapt for multi-periods and
  9. others measure of risk such as VaR, Kelly criterion, semi-variance or maximum acceptable loss.

The download includes the complete assignment in pdf.