Which of the following is not a step required for a multifactor risk model to estimate expected return for an individual stock position? A) Identify a set of K common risk factors. B) Estimate the risk premia for the factors. C) Estimate the sensitivities of the each stock to these K factors. D) Calculate the expected returns using linear programming analysis. E) All of the above are necessary steps for a multifactor risk model.

Question

Quizplus · Accepted Answer

Calculating expected returns using linear programming analysis is not a necessary step for a multifactor risk model to estimate expected return for an individual stock position. The necessary steps include identifying a set of common risk factors, estimating the risk premia for the factors, and estimating the sensitivities of each stock to these risk factors.

Which of the Following Is not a Step Required for a Multifactor