CAIA Chapter 4: Risk, return, and benchmarking

is a framework for specifying the return or price of an asset based on its risk, as well as future cash flows and payoffs. Not simply mathematical exercises, but ways of expressing the most fundamental issues relating investion; nature of risks and return

is typically a group of funds with similar objectives, strategies or portfolio holdings

attempts to describe how people and prices ought to behave

attempts to describe how people actually behave

describe behavior using deduction and assumptions that reflect well-established underlying behavior

are primarily based on observed behavior

are designed to adress real-world challenges and opportunities

also called basic models, have little or no usefulness in solving real-world challenges. Abstract models tend to be theoretical models that explain hypothetical behavior in highly unrealistic scenarios