Teaching CAPM for a Pre-Finance Graduate Program at the STEM Undergraduate Level: Linear Algebra Perspective
Students considering a masters in Finance Engineering or Artificial Intelligence in Finance are usually required to have an undergraduate background in science, technology, engineering, or mathematics (STEM). STEM students have a good capacity in mathematics and science, but they may not have studie...
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| Format: | Article |
| Language: | English |
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MDPI AG
2021-07-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/9/14/1668 |
| _version_ | 1797526653959667712 |
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| author | Chi-Lu Peng Wen-Kuei Chen An-Pin Wei |
| author_facet | Chi-Lu Peng Wen-Kuei Chen An-Pin Wei |
| author_sort | Chi-Lu Peng |
| collection | DOAJ |
| description | Students considering a masters in Finance Engineering or Artificial Intelligence in Finance are usually required to have an undergraduate background in science, technology, engineering, or mathematics (STEM). STEM students have a good capacity in mathematics and science, but they may not have studied financial theory. To facilitate the classroom teaching of the Capital Asset Pricing Model (CAPM) for STEM students, this paper seeks to expound on the essence of the theory starting at a two-asset framework. Adopting the concepts proposed by Merton (1972), this paper accomplishes the derivation by virtue of basic mathematical tools such as linear algebra, geometry, and statistics except for calculus. We show that the major aspects of Merton’s derivation of the CAPM for a universe of N assets may also be obtained in a two-asset world. Through the methods of this article, students will learn the in-depth theory of CAPM and its hands-on empirical tool. For example, students will realize that even if investors specify different threshold rewards, their different CAPMs will yield identical pricing for assets and portfolios. |
| first_indexed | 2024-03-10T09:32:22Z |
| format | Article |
| id | doaj.art-5efeab31452f4f07ba8cc881ccbc38cf |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-10T09:32:22Z |
| publishDate | 2021-07-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-5efeab31452f4f07ba8cc881ccbc38cf2023-11-22T04:20:23ZengMDPI AGMathematics2227-73902021-07-01914166810.3390/math9141668Teaching CAPM for a Pre-Finance Graduate Program at the STEM Undergraduate Level: Linear Algebra PerspectiveChi-Lu Peng0Wen-Kuei Chen1An-Pin Wei2Business Intelligence School, National Kaohsiung University of Science and Technology, Kaohsiung 82445, TaiwanBusiness Intelligence School, National Kaohsiung University of Science and Technology, Kaohsiung 82445, TaiwanSchool of Economics, Guangxi University for Nationalities, Nanning 530006, ChinaStudents considering a masters in Finance Engineering or Artificial Intelligence in Finance are usually required to have an undergraduate background in science, technology, engineering, or mathematics (STEM). STEM students have a good capacity in mathematics and science, but they may not have studied financial theory. To facilitate the classroom teaching of the Capital Asset Pricing Model (CAPM) for STEM students, this paper seeks to expound on the essence of the theory starting at a two-asset framework. Adopting the concepts proposed by Merton (1972), this paper accomplishes the derivation by virtue of basic mathematical tools such as linear algebra, geometry, and statistics except for calculus. We show that the major aspects of Merton’s derivation of the CAPM for a universe of N assets may also be obtained in a two-asset world. Through the methods of this article, students will learn the in-depth theory of CAPM and its hands-on empirical tool. For example, students will realize that even if investors specify different threshold rewards, their different CAPMs will yield identical pricing for assets and portfolios.https://www.mdpi.com/2227-7390/9/14/1668capital asset pricing modelbenchmark portfoliothreshold portfoliomarket portfoliosecurities market line |
| spellingShingle | Chi-Lu Peng Wen-Kuei Chen An-Pin Wei Teaching CAPM for a Pre-Finance Graduate Program at the STEM Undergraduate Level: Linear Algebra Perspective Mathematics capital asset pricing model benchmark portfolio threshold portfolio market portfolio securities market line |
| title | Teaching CAPM for a Pre-Finance Graduate Program at the STEM Undergraduate Level: Linear Algebra Perspective |
| title_full | Teaching CAPM for a Pre-Finance Graduate Program at the STEM Undergraduate Level: Linear Algebra Perspective |
| title_fullStr | Teaching CAPM for a Pre-Finance Graduate Program at the STEM Undergraduate Level: Linear Algebra Perspective |
| title_full_unstemmed | Teaching CAPM for a Pre-Finance Graduate Program at the STEM Undergraduate Level: Linear Algebra Perspective |
| title_short | Teaching CAPM for a Pre-Finance Graduate Program at the STEM Undergraduate Level: Linear Algebra Perspective |
| title_sort | teaching capm for a pre finance graduate program at the stem undergraduate level linear algebra perspective |
| topic | capital asset pricing model benchmark portfolio threshold portfolio market portfolio securities market line |
| url | https://www.mdpi.com/2227-7390/9/14/1668 |
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