Marois, Olivier Le; Mikhalevski, Julia; Douady, Raphaël - Centre d'Économie de la Sorbonne, Université Paris 1 … - 2014
The LP formula is based upon the substitution of the exogenous risk aversion hypothesis by a credit equilibrium hypothesis. This leads to a trade-off between expected blue-sky return – the expected return excluding default scenarios – and extreme risk estimated from scenarios leading to...