Three Pricing Models in Modern Portfolio
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Before investing, the paramount concern for investors is to have an idea about the expected return from the investment and the risks they are going to take. Determining the efficient price of portfolios by utilizing workable pricing models is the key thing to do for investors. In the history of portfolio pricing, Markowitz Portfolio Theory, Capital Asset Pricing Model (CAPM), and Arbitrage Pricing Theory are three significant pricing methods, which work well under their given circumstances. In this article, I will introduce the three pricing models in modern portfolio, give the mathematical formulas of the three models, and explain them in an understandable way. Furthermore, I will explain the limitations of each model and their connections. Also, I will give my perspective of portfolio pricing by the end.
efficient price, portfolio pricing models, Markowitz Pricing Theory, Capital Asset Pricing Model, Arbitrage Pricing Theory.