Our glossary explains technical terms from the areas finance and reinsurance. We hope it facilitates the understanding of our texts, publications and annual reports. If you have comments or suggestions, please use our feedback form!
Capital asset pricing model (CAPM)
the CAPM is used to explain the materialisation of prices/returns on the capital market based on investor expectations regarding the future probability distribution of returns. Under this method, the opportunity cost rate for the shareholders’ equity consists of three components – a risk-averse interest rate, a market-specific risk loading and an enterprise-specific risk assessment, the beta coefficient. The cost of shareholders’ equity is therefore defined as follows: risk-averse interest rate + beta * enterprise-specific risk assessment.