Basic Model
This model is the basis upon which our demonstration is built. However, one must note that this
model is a simplified version under which many constraints have been relaxed. These
relaxations are detailed below.
Our basic model included only a single risk factor and four securities and was
intended to find the portfolio with the minimum exposure to risk. Thus, our
model is:
minimize sum xiBi
subject to
xi >= 0
sum xi = 1
where:
- xi is the proportion of the portfolio
invested in security i
- Bi is the beta of security i
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Last Updated November 19, 1997 by Chris Payton