Research on Capital Asset Pricing Models: Literature Review and Possible Optimization

The Capital Asset Pricing Model (CAPM) assists investors in understanding the relationship between asset returns and risks, so as to provide the basis for investment decisions. Developed based on portfolio theory and capital market theory, CAPM mainly studies the relationship between the expected return rate of assets and risk assets in the security market, and how the equilibrium price is formed. This paper aims to discuss the basic principle and theoretical basis of CAPM, its use methods and specific functions, as well as its advantages and disadvantages in the process of use, and summarizes its optimization possibilities in terms of functions. The paper reviews and outlines the theoretical framework and practical techniques of CAPM, alongside the latest findings in research. Then, this paper extends the topic to the advantages and disadvantages of the functions found so far in the research and use process, finds effective frontier areas combined with related research articles, and proposes some possible optimization methods. In addition, in view of the different situations, this paper introduces the concept of CAPM.