Arbitrage pricing theory （套利定价理论）.pptVIP

Arbitrage Pricing Theory FINC 6000 Quantitative Finance Lecture Objectives Motivation for Arbitrage Pricing Theory (APT) framework Introduce the idea of arbitrage Explore the assumptions underpinning the APT Understand the risk-return relationship implied by the APT Arbitrage Pricing Theory Motivation Overcome shortcomings of the CAPM Assumptions are less restrictive than the CAPM Arbitrage Pricing Theory (APT) is empirically testable Arbitrage What is it ? “Law of One Price” Assumptions APT is credited to Ross [1976] with the arguments refined by Huberman [1982] Assumptions Large asset markets Market permits no arbitrage opportunities Asset returns have a linear factor structure Arbitrage Argument Construct a zero-investment portfolio A such that it is riskfree. No riskfree arbitrage opportunities requires Arbitrage Pricing Theory By relying on arbitrage arguments, create a multifactor asset pricing model. Holds exactly for well diversified portfolios. May not hold for some individual portfolios. But, What are the factors? Can we form factor mimicking portfolios? How many factors? Linear Factor Structure Returns are generated by k - factors Thus return generation similar to SIM and MIM framework We do not specify factor structure at this stage, but do require a linear relationship where ri return on the ith asset E(Ri) is the expected return on the ith asset β sensitivity of the ith asset’s return to the kth factor Fk mean zero kth factor common to the returns of all assets Expected Return In large, competitive asset markets permitting no arbitrage with asset returns being generated by a linear k dimensional factor structure Ross [1976] shows the relationship between the asset’s expected return and systematic risk factors is linear Expected Return or where expected return on an asset with zero sensitivity to the systematic risk factors is the expected return with unit sensitivity to factor k Individual Assets and APT