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Factor Models and General Definition

Darolles, Serge; Duvaut, Patrick; Jay, Emmanuelle (2013), Factor Models and General Definition, in Darolles, Serge; Duvaut, Patrick; Jay, Emmanuelle, Multi-factor models and signal processing techniques: application to quantitative finance, ISTE ; J. Wiley : London ; Hoboken, NJ, p. 1–21. 10.1002/9781118577387.ch1

Type
Chapitre d'ouvrage
Date
2013
Book title
Multi-factor models and signal processing techniques: application to quantitative finance
Book author
Darolles, Serge; Duvaut, Patrick; Jay, Emmanuelle
Publisher
ISTE ; J. Wiley
Published in
London ; Hoboken, NJ
ISBN
978-1-84821-419-4
Number of pages
184
Pages
1–21
Publication identifier
Metadata
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Author(s)
Darolles, Serge
Dauphine Recherches en Management [DRM]
Duvaut, Patrick

Jay, Emmanuelle
Abstract (EN)
This chapter introduces the common version of linear factor models and also discusses its limits and developments. It introduces different notations and discusses the model and its structure. The chapter lists out the reasons why factor models are generally used in finance, and further explains the limits of this approach. It also deals with the different steps in the building of factor models, i.e. factor selection and parameter estimation. Finally, the chapter gives a historical perspective on the use of factor models such as capital asset pricing model (CAPM), Sharpe's market model and arbitrage pricing theory (APT) in finance.
Subjects / Keywords
arbitrage pricing theory (APT); capital asset pricing model (CAPM); factor models; Finance; Sharpe's market model
JEL
C30 - General
G11 - Portfolio Choice; Investment Decisions
G12 - Asset Pricing; Trading Volume; Bond Interest Rates