Linear Factor Models in Finance

Linear Factor Models in Finance

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Description

The determination of the values of stocks, bonds, options, futures, and derivatives is done by the scientific process of asset pricing, which has developed dramatically in the last few years due to advances in financial theory and econometrics. This book covers the science of asset pricing by concentrating on the most widely used modelling technique called: Linear Factor Modelling.

Linear Factor Models covers an important area for Quantitative Analysts/Investment Managers who are developing Quantitative Investment Strategies. Linear factor models (LFM) are part of modern investment processes that include asset valuation, portfolio theory and applications, linear factor models and applications, dynamic asset allocation strategies, portfolio performance measurement, risk management, international perspectives, and the use of derivatives.

The book develops the building blocks for one of the most important theories of asset pricing - Linear Factor Modelling. Within this framework, we can include other asset pricing theories such as the Capital Asset Pricing Model (CAPM), arbitrage pricing theory and various pricing formulae for derivatives and option prices.

As a bare minimum, the reader of this book must have a working knowledge of basic calculus, simple optimisation and elementary statistics. In particular, the reader must be comfortable with the algebraic manipulation of means, variances (and covariances) of linear combination(s) of random variables. Some topics may require a greater mathematical sophistication.
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Product details

  • Hardback | 304 pages
  • 156 x 234 x 22.35mm | 650g
  • Butterworth-Heinemann Ltd
  • Oxford, United Kingdom
  • English
  • New
  • Illustrated; Illustrations, unspecified
  • 0750660066
  • 9780750660068

Table of contents

Review of the literature on multifactor asset pricing, M.Pitsillis. Estimating UK factor models using multivariate skew normal distribution, C. Adcock. Misspecification in the Linear Pricing Model, I. Lo. Bayesian estimation of Risk-Premia in an APT context, T. Darsinos and S. Satchell. Sharpe Style Analysis in the MSCI Sector Portfolios, G. Christodoulakis. Implication of the method of portfolio formation on asset pricing tests, I. Lo. The Small Noise Arbitrage Pricing Theory, S.Satchell. Risk Attribution in a Global Country Sector, A. Scowcroft and J. Sefton. Predictability of Fund of Hedge Fund Returns Using Dynaporte, G. Gregoriou and F. Rouah. Estimating a Combined Linear Model, A. Stroyny. Attributing Equity Risk with a Statistical Factor Model, T. Wilding Making Covariance-based Portfolio Risk Models Sensitive to the rate at which markets reflect new information, D. Di Bartolomeo and S. Warrick. Decomposing Factor Exposure for Equity Portfolios, D. Tien et al.
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About Stephen Satchell

Stephen Satchell is a Fellow of Trinity College, the Reader in Financial Econometrics at the University of Cambridge and Visiting Professor at Birkbeck College, City University Business School and University of Technology, Sydney. He provides consultancy for a range of city institutions in the broad area of quantitative finance. He has published papers in many journals and has a particular interest in risk.
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