Before revision:  In a continuous time framework, we bring together the notion of intrinsic risk and the theory of change of measures to derive a probability measure, namely risk-subjective measure, for pricing and hedging financial derivatives. The risk-subjective measure and the measure of intrinsic risk provide an internal consistency in pricing and hedging contingent claims and importantly explains the phenomena .
After revision:  In a continuous time framework, we bring together the notion of intrinsic risk and the theory of change of measures to derive a probability measure, namely risk-subjective measure, for evaluating contingent claims. This paper is a modest attempt to prove that measure of intrinsic risk provide an internal consistency in pricing and hedging contingent claims and importantly explains the phenomena .