  We propose a method for extending a given asset pricing formula to account
for two additional sources of risk: the risk associated with future changes in
market--calibrated parameters and the remaining risk associated with
idiosyncratic variations in the individual assets described by the formula. The
paper makes simple and natural assumptions for how these risks behave. These
extra risks should always be included when using the formula as a basis for
portfolio management. We investigate an idealized typical portfolio problem,
and argue that a rational and workable trading strategy can be based on
minimizing the quadratic risk over the time intervals between trades. The
example of the variance gamma pricing formula for equity derivatives is
explored, and the method is seen to yield tractable decision strategies in this
case.
