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Capital Asset Pricing Model (CAPM)

In: Mathematical Financial Economics

Author

Listed:
  • Igor V. Evstigneev

    (University of Manchester)

  • Thorsten Hens

    (University of Zurich)

  • Klaus Reiner Schenk-Hoppé

    (University of Manchester)

Abstract

The chapter introduces the reader to the celebrated Capital Asset Pricing Model (CAPM). It opens with the statement of a general version of the CAPM followed by a proof based on an explicit formula for the efficient portfolios. It then outlines an equilibrium model for the CAPM, defines the concepts of the market portfolio and capitalization weights and establishes the efficiency of the market portfolio. The highlight of the chapter is the Sharpe-Lintner-Mossin CAPM formula. Key notions related to it (the beta of an asset, risk premium, etc.) are defined and discussed.

Suggested Citation

  • Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2015. "Capital Asset Pricing Model (CAPM)," Springer Texts in Business and Economics, in: Mathematical Financial Economics, edition 127, chapter 7, pages 53-59, Springer.
    • Handle: RePEc:spr:sptchp:978-3-319-16571-4_7
    DOI: 10.1007/978-3-319-16571-4_7
    as

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