METHOD AND SYSTEM TO SOLVE DYNAMIC MULTI-FACTOR MODELS IN FINANCE

A method is for determining a factor exposure of an asset collection for each of time intervals in a period of time. For each of time intervals, an objective function which includes an estimation error term or at least one transition error term is determined. The estimation error term represents an estimation error at each time interval between a performance of the asset collection and a sum of products of each of the at least one factor exposure and its respective factor. The at least one transition error term represents a transition error at each time interval after a first time interval for each of the at least one factor exposure between the time interval and a prior time interval. For each of time intervals, the at least one factor exposure by optimizing a value of the objective function is determined.