Related papers: A simplified Capital Asset Pricing Model

We consider a financial market in which two securities are traded: a stock and an index. Their prices are assumed to satisfy the Black-Scholes model. Besides assuming that the index is a tradable security, we also assume that it is…

The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on…

This paper gives yet another definition of game-theoretic probability in the context of continuous-time idealized financial markets. Without making any probabilistic assumptions (but assuming positive and continuous price paths), we obtain…

We derive formulas for the performance of capital assets in continuous time from an efficient market hypothesis, with no stochastic assumptions and no assumptions about the beliefs or preferences of investors. Our efficient market…

Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing…

The principal portfolios of the standard Capital Asset Pricing Model (CAPM) are analyzed and found to have remarkable hedging and leveraging properties. Principal portfolios implement a recasting of any correlated asset set of N risky…

The capital asset pricing model (CAPM) is readily used to capture a linear relationship between the daily returns of an asset and a market index. We extend this model to an intraday high-frequency setting by proposing a functional CAPM…

An open market is a subset of an entire equity market composed of a certain fixed number of top capitalization stocks. Though the number of stocks in the open market is fixed, the constituents of the market change over time as each…

The Capital Asset Pricing Model (CAPM) is one of the original models in explaining risk-return relationship in the financial market. However, when applying the CAPM into reality, it demonstrates a lot of shortcomings. While improving the…

A market model in Stochastic Portfolio Theory is a finite system of strictly positive stochastic processes. Each process represents the capitalization of a certain stock. If at any time no stock dominates almost the entire market, which…

The LIBOR Market Model (LMM) is a widely used model for pricing interest rate derivatives. While the Black-Scholes model is well-known for pricing stock derivatives such as stock options, a larger portion of derivatives are based on…

We consider a class of generalized capital asset pricing models in continuous time with a finite number of agents and tradable securities. The securities may not be sufficient to span all sources of uncertainty. If the agents have…

A simple statement and accessible proof of a version of the Fundamental Theorem of Asset Pricing in discrete time is provided. Careful distinction is made between prices and cash flows in order to provide uniform treatment of all…

This research paper explores the performance of Machine Learning (ML) algorithms and techniques that can be used for financial asset price forecasting. The prediction and forecasting of asset prices and returns remains one of the most…

The paper has 2 main goals: 1. We propose a variant of the CAPM based on coherent risk. 2. In addition to the real-world measure and the risk-neutral measure, we propose the third one: the extreme measure. The introduction of this measure…

In this paper we continue our systematic analysis of the operatorial approach previously proposed in an economical context and we discuss a {\em mixed} toy model of a simplified stock market, i.e. a model in which the price of the shares is…

In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…

This paper presents an empirical analysis of the capital asset pricing model using trading data for the Chinese A-share market from 2000 to 2019. Firstly, the standard CAPM is tested using a Fama-MacBetch regression and although the results…

We find that the CAPM fails to explain the small firm effect even if its non-parametric form is used which allows time-varying risk and non-linearity in the pricing function. Furthermore, the linearity of the CAPM can be rejected, thus the…

In this paper, we propose and study a novel continuous-time model, based on the well-known constant elasticity of variance (CEV) model, to describe the asset price process. The basic idea is that the volatility elasticity of the CEV model…