Risk Measure
Default Risk
We use a monetary risk measure to quantify this default risk. Monetary risk measure is a mapping from a set of random variables to a real number, which we can think of as the amount of capital needed to cover for the risk.
We use a specific coherent risk measure called entropic value-at-risk (EVaR) for the risk calculation.
Objective
In the following sections, we discuss how they are priced using EVaR.
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