Essays on Arbitrage Pricing Theory
The two leading models in financial economics that attempt to explain the relationship between the riskiness and assets returns are the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). Capital Asset Pricing Model (CAPM) The CAPM model was developed by William Sharpe (1964), and Parallel work was performed by Lintner (1965) and...
Introduction Imagine travelling and observing that apples in one region of the country are cheaper compared to the prices charged in your home region. Given that scenario, a rational human being will seek to maximize their “level of…utility [as they] would rather be better off than worse off” (Kenton, 2018). Subsequently, the rational individual will...
The term “arbitrage” is innately ambiguous as it can be open to more than one interpretation. It is a word that is frequently used in a variety of ways, however to be more precise and to eliminate any uncertainty, we will provide a concise definition in which we will refer to throughout this paper. In...
