McCauley, Joseph L. and Gunaratne, Gemunu H. (2003): On CAPM and BlackScholes, differing riskreturn strategies. Published in: Physica A , Vol. 329, (0203): pp. 170177.

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Abstract
In their pathfinding 1973 paper Black and Scholes presented two separate derivations of their famous option pricing partial differential equation (pde). The second derivation was from the standpoint that was Black’s original motivation, namely, the capital asset pricing model (CAPM). We show here, in contrast, that the option valuation is not uniquely determined; in particular, strategies based on the deltahedge and CAPM provide different valuations of an option although both hedges are instantaneouly riskfree. Second, we show explicitly that CAPM is not, as economists claim, an equilibrium theory.
Item Type:  MPRA Paper 

Institution:  University of Houston 
Original Title:  On CAPM and BlackScholes, differing riskreturn strategies 
Language:  English 
Keywords:  Capital asset pricing model (CAPM); nonequilibrium; financial markets; BlackScholes; option pricing strategies; 
Subjects:  C  Mathematical and Quantitative Methods > C0  General D  Microeconomics > D5  General Equilibrium and Disequilibrium > D53  Financial Markets C  Mathematical and Quantitative Methods > C6  Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C65  Miscellaneous Mathematical Tools 
Item ID:  2162 
Depositing User:  Joseph L. McCauley 
Date Deposited:  09. Mar 2007 
Last Modified:  11. Feb 2013 23:45 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/2162 