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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