1. Arbitrage Pricing Theory

2. Financial portfolio - Description
A portfolio's asset allocation may be managed utilizing any of the following investment approaches and principles: equal weighting, capitalization-weighting, price-weighting, risk parity, the capital asset pricing model, arbitrage pricing theory, the Jensens alpha|Jensen Index, theTreynor ratio|Treynor Index, the William Forsyth Sharpe|Sharpe diagonal (or index) model, the value at risk model, modern portfolio theory and others.

3. Corporate finance - Capitalization structure
The cost of equity (see Capital asset pricing model|CAPM and arbitrage pricing theory|APT) is also typically higher than the cost of debt - which is, additionally, a deductible expense – and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk.See:[ Optimal Balance of Financial Instruments: Long-Term Management, Market Volatility Proposed Changes], Nishant Choudhary, LL.M

4. Corporate finance - Investment and project valuation
Aswath Damodaran: [ Estimating Hurdle Rates] Managers use models such as the capital asset pricing model|CAPM or the arbitrage pricing theory|APT to estimate a discount rate appropriate for a particular project, and use the weighted average cost of capital (WACC) to reflect the financing mix selected

5. Capital asset pricing model
Despite its empirical flaws and the existence of more modern approaches to asset pricing and portfolio selection (such as arbitrage pricing theory and Merton's portfolio problem), the CAPM still remains popular due to its simplicity and utility in a variety of situations.

6. Mortgage-backed security - Interest rate risk and prepayment risk
Professional investors generally use Arbitrage pricing theory|arbitrage-pricing models to value MBS. These models deploy Interest rate risk|interest rate scenarios consistent with the current yield curve as drivers of the econometric prepayment models that models homeowner behavior as a function of projected mortgage rates. Given the market price, the model produces an option-adjusted spread, a valuation metric that takes into account the risks inherent in these complex securities.

7. Mathematical finance - Risk and portfolio management: the P world
Next, breakthrough advances were made with the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT) developed by Treynor (1962), Mossin (1966), William Forsyth Sharpe|William Sharpe (1964), Lintner (1965) and Ross (1976).

8. Master of Financial Economics - Structure
Where the program emphasizes economics, the curriculum is extended: it explores phenomena where these assumptions do not hold (Noise trader|noise trading, market microstructure, Behavioral economics#Behavioral finance|behavioural finance) and it discusses models which are further generalised (arbitrage pricing theory, Mathematical_finance#Derivatives_pricing:_the_Q_world|continuous time finance / Martingale pricing) or extended (Fama-French three-factor model|Multi-factor models, Short rate model|models of the short rate, Intertemporal CAPM, Black–Litterman model)

9. The Theory of Investment Value - Theory
Today, “evaluation by the rule of present worth”, applied in conjunction with an Capital asset pricing model#Asset-specific required return|asset appropriate discount rate mdash; usually derived using the capital asset pricing model of modern portfolio theory (Harry Markowitz and William Forsyth Sharpe|William Sharpe), or the arbitrage pricing theory (Stephen Ross (economist)|Stephen Ross) mdash; is probably the most widely used stock valuation method amongst institutional investors; see List of finance topics#Discounted cash flow valuation|List of valuation topics

10. Rational pricing - Pricing shares
The arbitrage pricing theory (APT), a general theory of asset pricing, has become influential in stock pricing. APT holds that a financial asset's expected return can be modeled as a linear function of various macroeconomics|macro-economic factors, with sensitivity to changes in each factor being represented by a factor specific beta coefficient:

11. Rational pricing - Pricing shares
See the Arbitrage pricing theory#Arbitrage mechanics|arbitrage pricing theory article for detail on the construction of the portfolio

12. Working capital management - Capitalization structure
The cost of equity (see Capital asset pricing model|CAPM and arbitrage pricing theory|APT) is also typically higher than the cost of debt - which is, additionally, a deductible expense – and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk.See:[ Optimal Balance of Financial Instruments: Long-Term Management, Market Volatility Proposed Changes], Nishant Choudhary, LL.M

13. Working capital management - Investment and project valuation
Aswath Damodaran: [ Estimating Hurdle Rates] Managers use models such as the capital asset pricing model|CAPM or the arbitrage pricing theory|APT to estimate a discount rate appropriate for a particular project, and use the weighted average cost of capital (WACC) to reflect the financing mix selected

14. Capital budgeting - Capital Budgeting Definition
Managers may use models such as the capital asset pricing model|CAPM or the arbitrage pricing theory|APT to estimate a discount rate appropriate for each particular project, and use the weighted average cost of capital (WACC) to reflect the financing mix selected

15. Modern portfolio theory - Comparison with arbitrage pricing theory
The Security Market Line and capital asset pricing model are often contrasted with the arbitrage pricing theory (APT), which holds that the expected return of a financial asset can be modeled as a linear function of various Macroeconomics|macro-economic factors, where sensitivity to changes in each factor is represented by a factor specific beta coefficient.

16. Real options valuation - Applicability of standard techniques
Under this “standard” NPV approach, future expected cash flows are present valued under the Mathematical_finance#Risk_and_portfolio_management:_the_P_world|empirical probability measure at a discount rate that reflects the embedded risk in the project; see Capital asset pricing model|CAPM, Arbitrage pricing theory|APT, Weighted average cost of capital|WACC

17. Working capital management - Capitalization structure
The cost of equity (see Capital asset pricing model|CAPM and arbitrage pricing theory|APT) is also typically higher than the cost of debt - which is, additionally, a deductible expense – and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk.See:[ Optimal Balance of Financial Instruments: Long-Term Management, Market Volatility Proposed Changes], Nishant Choudhary, LL.M

18. Residual income valuation - Calculation of residual income
The cost of equity is typically calculated using the Capital Asset Pricing Model|CAPM, although other approaches such as arbitrage pricing theory|APT are also used. The currency charge to be subtracted is then simply

19. Inverted yield curve - The typical shape of the yield curve
Therefore, under the arbitrage pricing theory, investors who are willing to lock their money in now need to be compensated for the anticipated rise in rates—thus the higher interest rate on long-term investments.

20. Arbitrage pricing theory
In finance, 'arbitrage pricing theory' ('APT') is a general theory of asset pricing that holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors or theoretical market indices, where sensitivity to changes in each factor is represented by a factor-specific beta coefficient

21. Roll's critique - Relationship to the APT
The mean-variance tautology argument applies to the arbitrage pricing theory and all asset-pricing models of the form

22. Investment theory
'Investment theory' encompasses the body of knowledge used to support the decision-making process of choosing investments for various purposes. It includes portfolio theory, the capital asset pricing model, arbitrage pricing theory, efficient-market hypothesis, and rational pricing. It is near synonymous with asset pricing theory, one major focus of financial economics; see Financial_economics#Uncertainty|Financial economics #Uncertainty.

23. Macro risk
Models that incorporate macro risk are generally of two types. One type, used primarily by stock traders and institutional investor|institutions, focuses on how short-term changes in macro risk factors impact stock returns. These models include the Arbitrage Pricing Theory and the Modern Portfolio Theory families of models.

24. Behavioral portfolio theory
It does not follow the same principles as the Capital Asset Pricing Model, Modern Portfolio Theory and the Arbitrage Pricing Theory

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