Risk premium

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Revision as of 13:26, 9 June 2020 by imported>Doug Williamson (Add 2nd definition. Source: Linked pages.)
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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.


See also