Arbitrage Pricing Theory and Multifactor Models of Risk and Return (FRM P1 – Book 1 – Chapter 12)

Learn Arbitrage Pricing Theory and multifactor models for FRM Part 1. Prof. Forjan explains how APT extends beyond CAPM, how factor betas work, how to build well diversified factor portfolios, and how to hedge factor risk. You will also see the Fama French three factor idea and how risk premiums link to expected returns. What you’ll learn: APT intuition and the law of one price Single vs multi factor models Factor betas and risk premiums Hedging factor exposures Fama French three factor overview For FRM (Part I & Part II) video lessons, study notes, question banks, mock exams, and formula sheets covering all chapters of the FRM syllabus, click on the following link: https://analystprep.com/shop/unlimite... AnalystPrep is a GARP-Approved Exam Preparation Provider for FRM Exams After completing this reading, you should be able to: Describe the inputs, including factor betas, to a multifactor model. Calculate the expected return of an asset using a single-factor and a multifactor model. Describe properties of well-diversified portfolios and explain the impact of diversification on the residual risk of a portfolio. Explain how to construct a portfolio to hedge exposure to multiple factors. Describe and apply the Fama-French three-factor model in estimating asset returns. #FRM #FRMPart1 #RiskManagement #ArbitragePricingTheory #APT #QuantFinance #PortfolioManagement #FamaFrench #FinancialMarkets #ExamPrep #AnalystPrep #FinanceEducation