Projection pricing (Q5942342)

This paper regards the pricing problem from the projection viewpoint. It shows that the results of the Capital Asset Pricing Model (CAPM) formula are duplicated by a formula based on the minimum-norm portfolio. This pricing formula is even valid in cases where there is no efficient portfolio of risky assets. The relation of the pricing to other aspects of projection is also developed. Especially, a new pricing formula called the correlation pricing formula is developed. It yields the same price as the CAPM but, in some cases, it is likely to be more accurate and more convenient than the CAPM.