The theory of pricing to acceptability developed for incomplete markets by Cherny and Madan (2009b) is applied to marking ones own default risk. It is observed in agreement with Heckman (2004), that assets and liabilities are not to be priced under fair value accounting principles at the same...

We argue that capital requirements are needed to cover unexpected losses arising in incomplete markets. After observing that a complete market is an inappropriate context for answering such questions we turn to a theory of capital requirements developed for an incomplete markets economy where...