Theoretical analysis demonstrates a streamlined proof of the Capital Asset Pricing Model requiring fewer assumptions, suggesting financial securities can be priced under more realistic conditions.
The CAPM is the fundamental model for pricing financial securities. Nevertheless, the way it is proved in Finance textbooks can be fairly confusing, and more complicated than necessary; with an excessive use of figures at the expense of equations. In addition, depending on the Finance textbook, the set of assumptions that are supposedly needed to prove the CAPM may actually differ. This paper tries to provide an intuitive and straightforward proof of the CAPM and it also illustrates at which instances of the proof the traditional assumptions are actually needed. The main conclusion is that a much simpler version of the CAPM would possibly be as formidable and ingenious as the traditional one and yet, with a much more intuitive proof and fewer unrealistic assumptions.
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Paulo Sérgio Tenani (2026) studied this question.
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