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Asset pricing model |
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Asset pricing modelA model for determining the required or expected rate of return on an asset. Related: Capital asset pricing model and arbitrage pricing theory.Asset pricing model Similar MatchesArbitrage free option pricing modelsArbitrage free option pricing modelsYield curve option-pricing models. Capital asset pricing model (CAPM)Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium multiplied by the assets systematic risk. Theory was invented by William Sharpe (1964) and John Lintner (1965). Garman Kohlhagen option pricing modelGarman Kohlhagen option pricing modelA model widely used to price foreign currency options. Transfer pricingTransfer pricingLiterally this only refers to the price charged on goods and services that are traded between subsidiaries of a multinational corporation. However, the term usually connotes the setting of such prices high or low so as to minimize the total taxes paid to different governments, in response to differences in corporate tax rates. Option Pricing CurveOption Pricing CurveA graphical representation of the projected price of an option at a fixed point in time. It reflects the amount of time value premium in the option for various stock prices, as well. The curve is generated by using a mathematical model. The delta (or hedge ratio) is the slope of a tangent line to the curve at a fixed stock price. See also Delta and Hedge Ratio Further SuggestionsAdministrative pricing rulesUnderpricing Two state option pricing model Pricing efficiency Indication pricing schedule Forward pricing Pricing to market Regulatory pricing risk Repricing forward pricing Binomial option pricing model capital asset pricing model International Asset Pricing Model (IAPM) |
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