Pricing and Hedging in Incomplete Markets with Coherent Risk
21 Pages Posted: 30 May 2006
Date Written: May 2, 2006
We propose a pricing technique based on coherent risk measures, which enables one to get finer price intervals than in the No Good Deals pricing. The main idea consists in splitting a liability into several parts and selling these parts to different agents. The technique is closely connected with the convolution of coherent risk measures and equilibrium considerations.
Furthermore, we propose a way to apply the above technique to the coherent estimation of the Greeks.
Keywords: CDO, coherent risk measure, extreme measure, incomplete markets, factor risk, No Strictly Acceptable Opportunities, risk contribution, sensitivity coefficients, valuation measure, Weighted VaR
JEL Classification: G12, G13
Suggested Citation: Suggested Citation