Risk premium: Difference between revisions
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imported>Doug Williamson (Add 2nd definition. Source: Linked pages.) |
imported>Doug Williamson (Classify page.) |
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*[[Risk averse]] | *[[Risk averse]] | ||
*[[Risk management]] | *[[Risk management]] | ||
[[Category:The_business_context]] | |||
[[Category:Identify_and_assess_risks]] | |||
[[Category:Risk_frameworks]] | |||
[[Category:Cash_management]] | |||
[[Category:Financial_products_and_markets]] | |||
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Revision as of 13:27, 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.
