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What (who) is risk premium - definition
Risk premium
MINIMUM AMOUNT OF MONEY BY WHICH THE EXPECTED RETURN ON A RISKY ASSET MUST EXCEED THE KNOWN RETURN ON A RISK-FREE ASSET
Certainty equivalent; Risk Premium; Risk premia; Risk Premiums; Premium for risk; Certainty-equivalent
A risk premium is a measure of excess return that is required by an individual to compensate being subjected to an increased level of risk. It is used widely in finance and economics, the general definition being the expected risky return less the risk-free return, as demonstrated by the formula below.
Volatility risk premium
In mathematical finance, the volatility risk premium is a measure of the extra amount investors demand in order to hold a volatile security, above what can be computed based on expected returns.
Liquidity premium
In economics, a liquidity premium is the explanation for a difference between two types of financial securities (e.g.
Examples of use of risk premium
1. It‘s called risk premium – and the risk is yours.
2. This would increase the chances of overseas investors eventually demanding a risk premium for US assets.
3. Risk premium Some believe that supply will not only be forthcoming, but soon.
4. "The visibility has increased, therefore the risk premium has gone down.
5. They can also reduce adverse selection and facilitate risk premium credit pricing.