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Risk model definition

In the chasm between retail and institutional shops sits a hidden tool unavailable to most due to cost, awareness and complexity.

Intermediate

Risk model is a model for forecasting risk for each security in the coverage universe. Risk models include forecasts of variance for each securiy and the covariance between each pair of securities, or factors. Risk models are used for risk analysis and portfolio optimization. The three versions of third-party risk models include: fundamental factor, macroeconomic and statistical.

Synonyms: Arbitrage Pricing Theory model, APT model


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Quiz

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A fundamental factor risk model normally has fewer cells than a historical model of individual stocks. | True or False?

True

In a Sentence

Tim:  Have you heard what we spend on Ann's risk model  every year?
Kay:  Nope. It's a closely guarded secret, and you know what that means.

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Keywords:
risk model
APT model
Arbitrage Pricing Theory
forecasting risk
coverage universe
forecast variance
covariance
factors
securities
fundamental factor
macroeconomic
statistical
risk
risk analysis
portfolo optimization