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Risk-adjusted value allocation for (non-traded) assets with performance ratios

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  • Johannes Leitner

Abstract

We propose a new valuation principle for possibly non-traded assets based on an implicit definition of a benchmark. The valuation principle allows taking (default and shortfall) risk constraints explicitly into account. The resulting risk-adjusted value functional is monotonic, positively homogeneous, partially concave and allows for an additive allocation of risk-adjusted values of non-traded assets in a portfolio. The valuation principle is applied to the problem of hedging and pricing in incomplete markets. Furthermore, accounting for non-traded assets is considered and we derive a risk-adjusted balance sheet for non-deterministic cash streams.

Suggested Citation

  • Johannes Leitner, 2008. "Risk-adjusted value allocation for (non-traded) assets with performance ratios," Quantitative Finance, Taylor & Francis Journals, vol. 8(1), pages 93-102.
    • Handle: RePEc:taf:quantf:v:8:y:2008:i:1:p:93-102
    DOI: 10.1080/14697680601175449
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    References listed on IDEAS

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    7. Leitner Johannes, 2005. "Optimal portfolios with expected loss constraints and shortfall risk optimal martingale measures," Statistics & Risk Modeling, De Gruyter, vol. 23(1/2005), pages 49-66, January.
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