Risk premium: Difference between revisions
From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson (Create the page. Source: IFRS 13, page A631.) |
imported>Doug Williamson (Add 2nd definition. Source: Linked pages.) |
||
| Line 1: | Line 1: | ||
1. ''Financial reporting - fair valuation.'' | |||
For financial reporting and fair valuation purposes, risk premium is defined as additional compensation sought by rational risk-averse market participants for bearing the uncertainty inherent in the cash flows of an asset or a liability. | |||
This is a similar concept to market risk premium in the Capital asset pricing model. | This is a similar concept to market risk premium in the Capital asset pricing model. | ||
2. | |||
More broadly, value ascribed by any market participant to a reduction in uncertainty. | |||
This value would not necessarily be the same for all market participants. | |||
== See also == | == See also == | ||
*[[Capital asset pricing model]] | |||
*[[Fair value]] | *[[Fair value]] | ||
*[[IFRS 13]] | *[[IFRS 13]] | ||
*[[Market participant]] | *[[Market participant]] | ||
*[[Market risk premium]] | *[[Market risk premium]] | ||
*[[ | *[[Rational]] | ||
*[[Risk appetite]] | |||
*[[Risk averse]] | |||
*[[Risk management]] | |||
Revision as of 13:26, 9 June 2020
1. Financial reporting - fair valuation.
For financial reporting and fair valuation purposes, risk premium is defined as additional compensation sought by rational risk-averse market participants for bearing the uncertainty inherent in the cash flows of an asset or a liability.
This is a similar concept to market risk premium in the Capital asset pricing model.
2.
More broadly, value ascribed by any market participant to a reduction in uncertainty.
This value would not necessarily be the same for all market participants.
