Publication: Good Deals and compatible modification of risk and pricing rule: a regulatory treatment
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2011-05
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Springer
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Abstract
This work studies Good Deals in a scenario in which a fir uses decision-making
tools based on a coherent risk measure, and in which the market prices are determined with a
sub-linear pricing rule. The most important observation of this work is that the existence of a
Good Deal is equivalent to the incompatibility between the pricing rule and the risk measure.
In this paper, we look into this situation from a regulatory point of view to rule out Good
Deals with the purpose of stabilizing financia markets. We propose some practical ways of
modifying a risk measure so a regulator can set appropriate levels of capital requirements for
a financia institution.
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Keywords
Coherent risk measures, Princing rule, Good deal, Compatibility
Bibliographic citation
Mathematics and Financial Economics, 2011, v. 4, nº 4, pp. 253-268