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CAPM, rewards, and empirical asset pricing with coherent risk

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  • Alexander S. Cherny
  • Dilip B. Madan

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.

Suggested Citation

  • Alexander S. Cherny & Dilip B. Madan, 2006. "CAPM, rewards, and empirical asset pricing with coherent risk," Papers math/0605065, arXiv.org.
  • Handle: RePEc:arx:papers:math/0605065
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    File URL: http://arxiv.org/pdf/math/0605065
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    Cited by:

    1. Ignacio Cascos & Ilya Molchanov, 2006. "Multivariate risks and depth-trimmed regions," Papers math/0606520, arXiv.org, revised Nov 2006.
    2. repec:kap:compec:v:53:y:2019:i:2:d:10.1007_s10614-017-9766-5 is not listed on IDEAS
    3. Dyckerhoff, Rainer & Mosler, Karl, 2012. "Weighted-mean regions of a probability distribution," Statistics & Probability Letters, Elsevier, vol. 82(2), pages 318-325.

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