The main objective of this thesis is to study methods of financial risk measurement that are based on tradeable contracts and the market's view of future risks.

In most cases, the literature on market risk defines a risk measure as a parameter of a future loss distribution and subsequently presents techniques for estimation of the parameter using historical data and assumptions about the loss distribution. The approach applied in this thesis is different. We introduce financial contracts, the payoffs of which directly depend on adverse market movements, and then define tradeable measures of risk as market prices of the contracts. Such risk measures provide a forward looking assessment of the possibility that a market will experience a steep decline or a crash. Moreover, the contracts can serve as financial insurance against unfavorable market changes.

This thesis presents two types of tradeable measures of risk - a contract with payoff defined as an empirical version of a quantile-based risk measure, such as Value at Risk or Expected Shortfall, and a forward on the maximum drawdown of an asset. Furthermore, we study properties of drawdowns and drawups of asset prices modeled by a general diffusion process.