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Capital asset pricing model |
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Capital asset pricing modelA model for generating expected equity returns. It is based on the premise that returns are the reward for taking on risk, and that risk can be split into two types: stock-specific risk and market risk.Since stock-specific risk can be mitigated by diversification policies, investors should not be compensated for taking this on. Expected returns should only be a function of the share's response to returns on the market as a whole, which is given by the share's beta.Similar MatchesCapital 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). Forward pricingForward pricingPractice mandated by the SEC that open-end SEC establish all incoming buy and sell SEC on the next net SEC valuation of fund SEC. 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. Regulatory pricing riskRegulatory pricing riskRisk that arises when insurance companies are subject to regulation of the premium rates that can they charge. Binomial option pricing modelBinomial option pricing modelAn option pricing model in which the option can assume one of only two possible, discrete values in the next time period for each value that it can take on in the preceding time period. Further SuggestionsRepricingPricing efficiency Underpricing Two state option pricing model Asset pricing model Garman Kohlhagen option pricing model forward pricing Option Pricing Curve Indication pricing schedule Administrative pricing rules Arbitrage free option pricing models Pricing to market International Asset Pricing Model (IAPM) |
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