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Check out the new article: CAPM Model Indicator for the Forex Market.

Adaptation of the classical CAPM model for the Forex currency market in MQL5. The indicator calculates expected return and risk premium based on historical volatility. The indicators rise at peaks and bottoms, reflecting the fundamental principles of pricing. Practical application for counter-trend and trend-following strategies, taking into account the dynamics of the risk-reward ratio in real time. The article includes mathematical apparatus and technical implementation.

The foundations of CAPM were laid in the works of Harry Markowitz, who introduced modern portfolio theory in 1952. Markowitz demonstrated how investors can optimize risk-return ratios by diversifying their portfolios. His concept of the efficient frontier became the foundation for further theoretical developments in finance.

William Sharpe, while developing Markowitz's ideas, encountered the practical problem of the computational complexity of portfolio optimization. At that time, computer power was limited, and calculating the covariance matrix for a large number of assets presented a serious technical challenge. This prompted Sharpe to search for a simplified model that would retain theoretical rigor but be more practical in application.

In 1964, Sharpe published his famous article "Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk", where the CAPM model was first presented. Independently of Sharpe, similar ideas were developed by John Lintner and Jan Mossin, which underscored the fundamental nature of these findings. For his contributions to financial theory, Sharpe was awarded the Nobel Prize in Economics in 1990.


Author: Yevgeniy Koshtenko

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