CAPM, Rewards, and Empirical Asset Pricing with Coherent Risk
20 Pages Posted: 30 May 2006
Date Written: May 2, 2006
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: Suggested Citation