Financial primitives are introduced to define acceptable loss exposures when demands and supplies are defined on differing event spaces. Acceptable loss exposures are modeled by a convex cone of random variables containing the nonnegative random variables. The resulting financial equilibrium...

This paper characterizes performance measures satisfying a set of proposed axioms. We develop four new measures consistent with the axioms and show that they improve on the economic properties of the Sharpe Ratio and the Gain-Loss Ratio. In our treatment, the performance measures, or the indexes...

The Cox, Ross, and Rubinstein binomial model is generalized to the multinomial case. Limits are investigated and shown to yield the Black-Scholes formula in the case of continuous sample paths for a wide variety of complete market structures. In the discontinuous case a Merton-type formula is...

Contingent claims with payoffs depending on finitely many asset prices are modeled as elements of a separable Hilbert space. Under fairly general conditions, including market completeness, it is shown that one may change measure to a reference measure under which asset prices are Gaussian and...

Investors in equilibrium are modeled as facing investor specific risks across the space of assets. Personalized asset pricing models reflect these risks. Averaging across the pool of investors we obtain a market asset pricing model that reflects market risk exposures. It is observed on invoking...

This paper proposes a simple approach to estimate the implied recovery rates embedded in the prices of the debt securities of a firm that differ in priority at time of default. The approach allows for a complex capital structure setting assuming that the absolute priority rule (APR) can be...