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A Simple Approach to CAPM and Option Pricing


  • R. Cesari


In this paper we propose a simple approach to asset valuation in terms of two characteristics, expected value and expected variability, and their distinct marginal contributions to the value of the market portfolio. The result is shown to correspond to Sharpe’s CAPM. We then show that pricing in terms of characteristics (or CAPM) applies to any asset and in particular to option valuation. A pricing formula corresponding to Black and Scholes’ no-arbitrage option pricing is obtained under the assumption of normal asset price distributions.

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  • R. Cesari, 2001. "A Simple Approach to CAPM and Option Pricing," Working Papers 418, Dipartimento Scienze Economiche, Universita' di Bologna.
  • Handle: RePEc:bol:bodewp:418

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    References listed on IDEAS

    1. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    2. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    3. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
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