Risk premium

From ACT Wiki
Revision as of 18:00, 29 December 2022 by imported>Doug Williamson (Add link.)
(diff) ← Older revision | Latest revision (diff) | Newer revision → (diff)
Jump to navigationJump to search

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.


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