Concept · The RiskModels engine (ERM3)
Link beta (λ)
The coefficient that strips a higher level's exposure from a lower one, so each β captures only the *incremental* effect of its own level — no double-counting.
In depth
The orthogonalization coefficient. It strips a higher level's exposure from a lower one before estimating the lower level's beta, so no variance is double-counted across levels.
Formula
r*_sector = r_sector − λ(s→m)·r_m
In the methodology
The three levels: L1, L2, L3 →Referenced by (0)
No working paper references this concept yet.