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The Small Noise Arbitrage Pricing Theory

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Author Info
Steve Satchell
Abstract

This paper presents a small-noise version of the Arbitrage Pricing Theory (APT) which allows us to interpret the approximate linearity of the risk premia in terms of factor exposures for a fixed number of assets. The approximation becomes more accurate as the noise of the system decreases, even though the number of assets stays fixed.

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File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp4.pdf
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Publisher Info
Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 4.

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Date of creation: 01 Apr 1999
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Handle: RePEc:uts:rpaper:4

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Related research
Keywords: arbitrage pricing theory; linear factor models;

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

References listed on IDEAS
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  1. Huberman, Gur, 1982. "A simple approach to arbitrage pricing theory," Journal of Economic Theory, Elsevier, vol. 28(1), pages 183-191, October. [Downloadable!] (restricted)
  2. Bansal, Ravi & Viswanathan, S, 1993. " No Arbitrage and Arbitrage Pricing: A New Approach," Journal of Finance, American Finance Association, vol. 48(4), pages 1231-62, September. [Downloadable!] (restricted)
  3. Huberman, Gur & Kandel, Shmuel, 1987. " Mean-Variance Spanning," Journal of Finance, American Finance Association, vol. 42(4), pages 873-88, September. [Downloadable!] (restricted)
  4. Connor, Gregory, 1984. "A unified beta pricing theory," Journal of Economic Theory, Elsevier, vol. 34(1), pages 13-31, October. [Downloadable!] (restricted)
  5. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December. [Downloadable!] (restricted)
  6. Kadane, Joseph B, 1971. "Comparison of k-Class Estimators when the Disturbances are Small," Econometrica, Econometric Society, vol. 39(5), pages 723-37, September. [Downloadable!] (restricted)
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This page was last updated on 2009-12-2.

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