Risk premium: Difference between revisions
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imported>Doug Williamson (Add links.) |
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*[[Market participant]] | *[[Market participant]] | ||
*[[Market risk premium]] | *[[Market risk premium]] | ||
* [[Premium]] | |||
*[[Rational]] | *[[Rational]] | ||
*[[Risk appetite]] | *[[Risk appetite]] | ||
Latest revision as of 18:00, 29 December 2022
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.
