Intertemporal CAPM

This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. Find sources: "Intertemporal CAPM" – news · newspapers · books · scholar · JSTOR (August 2014) (Learn how and when to remove this message)

Within mathematical finance, the intertemporal capital asset pricing model, or ICAPM, is an alternative to the CAPM provided by Robert Merton. It is a linear factor model with wealth as state variable that forecasts changes in the distribution of future returns or income.

In the ICAPM investors are solving lifetime consumption decisions when faced with more than one uncertainty. The main difference between ICAPM and standard CAPM is the additional state variables that acknowledge the fact that investors hedge against shortfalls in consumption or against changes in the future investment opportunity set.