GARP Digital Library


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FRM Paid Candidate Price:         US$4.50
Reading Price:
GARP Member (Non-Affiliate):   US$4.50
Affiliate & Non-Member:             US$5.00
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Quantitative Level:
Topics Covered:
Arbitrage Pricing Theory (APT), factor models, factor analysis, fundamental macroeconomic factors, parameter estimation methods, time-varying risk premiums
Reading Abstract:
This chapter effectively introduces the Arbitrage Pricing Theory and factor models and the issues associated with their implementation, particularly parameter estimation and time-varying risk premiums. As with the book in general, this chapter is essentially non-technical, providing a higher level conceptual overview and referencing relevant previously published research for readers looking for more technical detail.
Reading Contents:
2.1 Description of the APT model
2.2 Factor analysis approach
2.3 Fundamental macroeconomic factor approach
2.4 Parameter estimation methodologies
2.5 Time-varying risk premiums
2.6 Problems with parameter estimation
2.7 Must risk premiums/expected returns be determined?
2.8 Missing final step to asset allocation
Book Review:
*** From the publisher ***

An exciting new model for improved asset allocation accuracy in every market environment.

Modern Portfolio Theory (MPT) and asset allocation are the foundations on which most institutional investors base their decisions. But many aspects of MPT weren`t designed for today`s fast-changing markets.

Dynamic Portfolio Theory and Management introduces a time-adaptive procedure that addresses this issue and simplifies the decision-making process. While asset allocation programs must adapt themselves to changing market conditions to succeed, how to accomplish that has been another matter. This book reveals a new model that:

* Helps investors change allocations based on economic factors
* Optimizes multi-time periods into a single future time period
* Assists forecasting of stock prices, bond prices, and interest rates

GARP Digital Library