What arbitrage pricing theory (APT) differs from CAPM — allows multiple systematic risk factors

What the risk parity approach does — allocates based on risk contribution, not capital allocation

Risk parity distributes capital proportionally to each asset's risk contribution

What is the Capital Asset Pricing Model (CAPM) and how does it calculate the expected return on an investment?

CAPM: Expected return = Risk-free rate + Beta * (Market return - Risk-free rate)

How do implied volatility, beta, and alpha influence the pricing and risk management of equity options?

Implied volatility, beta, and alpha affect option pricing and risk management by indicating market sentiment, systemic risk, and stock performance respectively

What adverse selection is — bad risks are more likely to seek insurance than good risks

Adverse selection: High-risk individuals disproportionately purchase insurance

What the Greeks portfolio risk measures together — Delta (direction), Gamma (convexity), Theta (time), Vega (volatility), Rho (rates)

Greeks combine to assess portfolio sensitivity: Delta, Gamma, Theta, Vega, Rho

What the risk-free rate represents — return on a theoretically riskless investment (Treasury bills)

The risk-free rate is the return on investments with minimal risk, like Treasury bills