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. Different models, like the Capital Asset Pricing Model (CAPM) and the Discounted Cash Flow (DCF) analysis, are commonly used in asset pricing. These models help investors make informed decisions by estimating potential returns and assessing the risks associated with different investments. Understanding asset pricing is essential for effective investment strategies.