A Simple Approach to CAPM and Option Pricing

Riccardo Cesari ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

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.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:418

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