大浩浩的笔记课堂——FRM考试学习笔记132

D.Investment Risk

D.投资风险

Topic 61 Factor Theory

1.Factors that impact asset prices(factor risks):

⑴Exposure to different factor risks earns risk premiums.

⑵Underlying factors may include the market,interest rates,investing styles,inflation and economic growth.

⑶Factor risks represent exposures to bad times,and this exposure must be compensated for with risk premiums.

⑷There are 3 important principles of factor risk:

①It is not exposure to the specific asset that matters,rather the exposure to the underlying risk factors.

②Assets represent bundles of factors,and assets´ risk premiums reflect these risk factors.

③Investors each have different optimal exposures to risk factors,including volatility.

2.Capital asset pricing model(CAPM):

⑴assumptions:

①Investors only have financial wealth.

②Investors have mean-variance utility.

③Investors have a single period investment horizon.

④Investors have homogenous(identical) expectations.

⑤All investors are price takers except the infinitely risk-averse investors who would only hold risk-free asset.

⑵formula:

⑶characteristics:

①It is a single-factor model that describes how an asset behaves in relation to other assets and to the market.

②The CAPM incorporates an asset´s covariance with the market portfolio,measured by the asset´s beta.

③In the CAPM world,the only relevant factor is the market portfolio,and risk premiums are determined solely by beta.

⑷lessons:

①Holding the factors,not the individual asset.

②Investors have their own optimal factor risk exposures.

③The average investor is fully invested in the market and holding the market portfolio.

④Exposure to factor risk must be rewarded.

⑤Risk is measured as beta exposure:

⑥Valuable assets have low risk premiums.

⑸shortcomings:

①Investors only have financial wealth.

②Investors have mean-variance utility.

③Investors have a single period investment horizon.

④Investors have homogenous(identical) expectations.

⑤Markets are frictionless.

⑥All investors are price takers.

3.Multifactor model:

⑴lessons:

There are 6 lessons from the multifactor models:

①Diversification is beneficial.

②Investors have optimal exposures,to factor risks in multifactor model.

③The average investor holds the market portfolio.

④Exposure to factor risk must be rewarded through risk premiums.

⑤Risk is measured by factor betas.

⑥Valuable assets have low risk premiums.

⑵example:

arbitrage pricing theory(APT):

①definition:

It uses systematic factors that can not be removed through arbitrage,for which investors must be compensated for through risk premiums.

②hypothesis:

efficient market hypothesis(EMH)

③characteristics:

A.rational explanation of behavioral biases:

Losses during bad times are compensated for high returns.

B.the behavioral explanation:

It is agents´ under- or overreactions to news that generates high returns.

C.the market barriers:

Market barriers may make it difficult to take advantage of mispricings.

4.Pricing Kernels

stochastic discount factor(SFD):

⑴definition:

It represents an index of bad times.

⑵formulas:

①m=a+b×R_m

②m=a+b₁f₁+b₂f₂+……+b_kf_k

③P_i=E(m×pay off_i)

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