New risk measure revolutionizes financial markets with objective pricing system
The article introduces Tradeable Measures of Risk as a way to measure risk objectively without relying on subjective assumptions. By using Realized Risk, which is based on actual returns, these measures provide a more accurate assessment of future risk. Tradeable Measures of Risk are financial contracts that pay out based on Realized Risk, allowing for direct observation of risk values from the market. Dynamic pricing formulas for these contracts are derived using an option pricing approach, assuming a certain distribution of returns. This approach connects Tradeable Measures of Risk with Coherent Measures of Risk, providing a more reliable method for assessing risk in financial markets.