A Simple Approach to CAPM and Option Pricing

Cesari, Riccardo ; D'Adda, Carlo (2001) A Simple Approach to CAPM and Option Pricing. DOI 10.6092/unibo/amsacta/665.
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Abstract

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.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Cesari, Riccardo
D'Adda, Carlo
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DOI
Deposit date
17 Jun 2004
Last modified
17 Feb 2016 14:00
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