Factor Models and the Ross-Huberman APT

Igor V. Evstigneev, Thorsten Hens and Klaus Schenk-Hoppé
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Igor V. Evstigneev: University of Manchester
Thorsten Hens: University of Zurich

Chapter 9 in Mathematical Financial Economics, 2015, pp 69-81 from Springer

Abstract: Abstract The chapter focuses on multifactor models. It begins with an analysis of their simplified version: the exact factor model. To examine it, the no-arbitrage hypothesis is introduced. The main result is the exact factor pricing theorem, which is proved by using this hypothesis. The highlight of the chapter is the Ross-Huberman Arbitrage Pricing Theory dealing with a model of a “large” asset market and establishing an “approximate” factor pricing theorem. The main assumption under which this result is obtained is an asymptotic version of the no-arbitrage hypothesis.

Keywords: Exact Factors; Multi-factor Model; Asset Market; Factor Prices; Arbitrage Pricing Theory (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/978-3-319-16571-4_9

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