Arbitrage Pricing Theory and Multifactor Models
Free GARP FRM Part I lesson in Foundations of Risk Management. 19 min read, ~2,863 words.
APT assumes returns are driven by multiple factors and rests on a factor model, diversification, and no arbitrage. It needs no homogeneous expectations, no mean-variance preferences, and no market portfolio. APT vs. CAPM: APT is multi-factor and free of CAPM's restrictive assumptions. CAPM is a special case of APT with...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
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