Overview of Asset Pricing Models Across Equities, Options, Bonds, and Firms

Summary

This overview surveys models used to relate asset values or expected returns to risk and other inputs. It describes CAPM as linking expected return to the risk-free rate and market exposure, then introduces multifactor models such as Fama–French, which add company characteristics. Arbitrage pricing theory is presented as a no-arbitrage approach using macroeconomic factors.

The document also outlines option valuation with Black–Scholes and binomial trees, fixed-income term-structure models including Nelson–Siegel, Vasicek, and Cox–Ingersoll–Ross, and company valuation using dividend growth or equity cash-flow approaches. These are brief summaries rather than derivations or comparative tests. The overview does not provide data, assumptions in detail, or guidance for selecting and calibrating models; it emphasizes that each model has a distinct scope and limitations, and choice depends on the asset and use case.

Key ideas

• CAPM relates expected return to the risk-free rate and exposure to market risk.
• Multifactor models add return drivers such as size, value, profitability, and investment characteristics.
• APT uses a no-arbitrage framework with multiple economic factors.
• Option, fixed-income, and company valuation models rely on different inputs and assumptions.
• Model selection depends on the asset being valued and the limits of each framework.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.