Risk-adjusted value allocation for (non-traded) assets with performance ratios

Johannes Leitner

Quantitative Finance, 2008, vol. 8, issue 1, 93-102

Abstract: We propose a new valuation principle for possibly non-traded assets based on an implicit definition of a benchmark. The valuation principle allows taking (default and shortfall) risk constraints explicitly into account. The resulting risk-adjusted value functional is monotonic, positively homogeneous, partially concave and allows for an additive allocation of risk-adjusted values of non-traded assets in a portfolio. The valuation principle is applied to the problem of hedging and pricing in incomplete markets. Furthermore, accounting for non-traded assets is considered and we derive a risk-adjusted balance sheet for non-deterministic cash streams.

Keywords: Performance ratios; Risk measures; Risk-adjusted value allocation; Pricing in incomplete markets (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1080/14697680601175449

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