CAPM, rewards, and empirical asset pricing with coherent risk

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

Dilute Bose gas: short-range particle correlations and ultraviolet divergence

The modified Bogoliubov model where the primordial interaction is replaced by the t matrix is reinvestigated. It is shown to provide a negative value of the kinetic energy for a strongly interacting dilute Bose gas, contrary to the original Bogoliubov model. To clear up the origin of this failure, the correct values of the kinetic and interaction energies of a dilute Bose gas are calculated. It is demonstrated that both the problem of the negative kinetic energy and the ultraviolet divergence, dating back to the well-known paper of Lee, Yang and Huang, is connected with an inadequate picture of the short-range boson correlations. These correlations are reconsidered within the thermodynamically consistent model proposed earlier by the present authors. Found results are in absolute agreement with the data of the Monte-Carlo calculations for the hard-sphere Bose gas.Comment: 11 pages, REVTeX, 2 figures inserte

Coherent measurement of factor risks

We propose a new procedure for the risk measurement of large portfolios. It employs the following objects as the building blocks: - coherent risk measures introduced by Artzner, Delbaen, Eber, and Heath; - factor risk measures introduced in this paper, which assess the risks driven by particular factors like the price of oil, S&P500 index, or the credit spread; - risk contributions and factor risk contributions, which provide a coherent alternative to the sensitivity coefficients. We also propose two particular classes of coherent risk measures called Alpha V@R and Beta V@R, for which all the objects described above admit an extremely simple empirical estimation procedure. This procedure uses no model assumptions on the structure of the price evolution. Moreover, we consider the problem of the risk management on a firm's level. It is shown that if the risk limits are imposed on the risk contributions of the desks to the overall risk of the firm (rather than on their outstanding risks) and the desks are allowed to trade these limits within a firm, then the desks automatically find the globally optimal portfolio

Reforming the over-the-counter derivatives market: what’s to be gained?

While derivative financial instruments have made the hedging and exchange of risk more efficient, the recent crisis showed that they also pose a substantial threat to financial stability in times of systemic turmoil. Underlying much of this threat is the lack of transparent reporting in the over-the-counter market for these instruments. This Commentary discusses the advantages of one solution to the transparency proble: moving the settlement or trading of derivatives to exchanges or clearinghouses.Derivative securities ; Financial market regulatory reform ; Over-the-counter markets