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A simplified Capital Asset Pricing Model

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  • Vladimir Vovk

Abstract

We consider a Black-Scholes market in which a number of stocks and an index are traded. The simplified Capital Asset Pricing Model is the conjunction of the usual Capital Asset Pricing Model, or CAPM, and the statement that the appreciation rate of the index is equal to its squared volatility plus the interest rate. (The mathematical statement of the conjunction is simpler than that of the usual CAPM.) Our main result is that either we can outperform the index or the simplified CAPM holds.

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  • Vladimir Vovk, 2011. "A simplified Capital Asset Pricing Model," Papers 1111.2846, arXiv.org.
    • Handle: RePEc:arx:papers:1111.2846
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    References listed on IDEAS

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    1. Vladimir Vovk, 2011. "The Capital Asset Pricing Model as a corollary of the Black-Scholes model," Papers 1109.5144, arXiv.org.
    2. Eugene F. Fama & Kenneth R. French, 2004. "The Capital Asset Pricing Model: Theory and Evidence," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 25-46, Summer.
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    Cited by:

    1. Vladimir Vovk & Glenn Shafer, 2016. "A probability-free and continuous-time explanation of the equity premium and CAPM," Papers 1607.00830, arXiv.org.

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