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Spanning Portfolios, Multiple-Factor Beta Models, and Systematic Risk

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Continuous-Time Asset Pricing Theory

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Abstract

This chapter studies spanning portfolios, the multiple-factor beta model, and characterizes systematic risk. This is done for an incomplete market with asset prices that can have discontinuous sample paths. Multiple-factor beta models are used for active portfolio management and the determination of positive alphas. These models can be derived using only the Third Fundamental Theorem 2.5 of asset pricing. A special case of this chapter is Ross’s APT, which illustrates the notion of portfolio diversification.

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Authors and Affiliations

  1. Samuel Curtis Johnson Graduate School, Cornell University, Ithaca, New York, USA

    Robert A. Jarrow

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  1. Robert A. Jarrow
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Jarrow, R.A. (2018). Spanning Portfolios, Multiple-Factor Beta Models, and Systematic Risk. In: Continuous-Time Asset Pricing Theory. Springer Finance(). Springer, Cham. https://doi.org/10.1007/978-3-319-77821-1_4

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