CAPM, Rewards, and Empirical Asset Pricing with Coherent Risk

20 Pages Posted: 30 May 2006

See all articles by Alexander S. Cherny

Alexander S. Cherny

Moscow State University

Dilip B. Madan

University of Maryland - Robert H. Smith School of Business

Date Written: May 2, 2006

Abstract

The paper has 2 main goals:

1. We propose a variant of the CAPM based on coherent risk. 2. In addition to the real-world measure and the risk-neutral measure, we propose the third one: the extreme measure. The introduction of this measure provides a powerful tool for investigating the relation between the first two measures. In particular, this gives us - a new way of measuring reward; - a new approach to the empirical asset pricing.

Keywords: CAPM, coherent risk measure, contact measure, empirical asset pricing, extreme measure, No Better Choice pricing, real-world measure, reward, risk-neutral measure, security market line, sensitivity

JEL Classification: G12

Suggested Citation

Cherny, Alexander S. and Madan, Dilip B., CAPM, Rewards, and Empirical Asset Pricing with Coherent Risk (May 2, 2006). Available at SSRN: https://ssrn.com/abstract=904807 or http://dx.doi.org/10.2139/ssrn.904807

Alexander S. Cherny (Contact Author)

Moscow State University ( email )

Faculty of Mechanics and Mathematics
Department of Probability Theory
Moscow, 119992
Russia
007 095 939 14 03 (Phone)
007 095 939 14 03 (Fax)

HOME PAGE: http://mech.math.msu.su/~cherny

Dilip B. Madan

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2127 (Phone)
301-314-9157 (Fax)

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