Fixing risk neutral risk measures (Q2806368)
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scientific article; zbMATH DE number 6581268
| Language | Label | Description | Also known as |
|---|---|---|---|
| English | Fixing risk neutral risk measures |
scientific article; zbMATH DE number 6581268 |
Statements
17 May 2016
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real world measure
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risk neutral measure
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option pricing
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risk
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exposure calculation
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potential future exposures (PFE)
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expected exposures (EE), credit valuation adjustment (CVA)
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0.8492663
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0.8401887
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0.8326292
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0.83159316
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0.83145803
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0.82885164
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0.8242527
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Fixing risk neutral risk measures (English)
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The author considers neutral risk measures related to credit risk: potential future exposures (PFE), expected exposures (EE), expected positive exposures (EPE), effective expected exposures (EEE) and effective expected positive exposures (EEPE). These measures are used by companies to set economic and regulatory capital levels and influence the reserves that firms need to hold. The author shows that these exposures calculated under the risk neutral measure depend on the choice of numéraires and may be manipulated depending on this choice. So, it is concluded that the exposures should be calculated under the real world measure. It is shown how to use measure changes to compute real world exposures in a risk neutral framework. A canonical risk neutral measure is developed that can be used as an alternative approach to risk calculation.
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