Equity Risk Models

Overview

Equtiy Factor Models are based on the Arbitrage Pricing Theory

Factors

• Technical Factors
• Economic Factors
• Fama/French

Fitting

Once the risk factors have been identified, one needs to estimate an assets sensitivity (beta) to the factor in order to use the model in practice. This involves fitting the model to the available data. There are multiple techniques for fitting a model to data.

• OLS Regression
• Maximum Likelihood
• Machine Learning