medium · FRM Part 1
In a multifactor model, what does the 'Factor Risk Premium' (λ_j) represent?
- The total realized return of the factor over a specific historical period.
- The standard deviation of the factor's return series.
- The correlation between the factor and the market portfolio.
- The expected excess return of a portfolio with a beta of 1.0 on factor j and 0.0 on all others.
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