Asset pricing refers to the method of determining the value of financial assets, such as stocks, bonds, and real estate. This process involves analyzing various factors, including expected future cash flows, risk, and market conditions. The goal is to establish a fair price that reflects the asset's intrinsic value. Several models are used in asset pricing, including the Capital Asset Pricing Model (CAPM) and the Discounted Cash Flow (DCF) analysis. These models help investors make informed decisions by estimating the expected returns based on the asset's risk profile and market behavior. Understanding asset pricing is essential for effective investment strategies.