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What are the general pricing methods for assets?

  1. What are the general pricing methods for assets?
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Answer #1

As per general equilibrium pricing theory, market prices are determined by ongoing supply and demand. This theory is based on the modern portfolio theory and CAPM which uses certain market variables to get a prototype result. This theory is used to evaluate diverse portfolios and then derive one price for all assets in the portfolio.

In general, the theory is to prepare a financial forecast for the project or firm and then discount the future estimated cash flows at the required rate of return. This helps us determine the riskiness of each project or decision.

Examples of certain models. For equities, CAPM, APT, Fama french 3 factor model etc are used.

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