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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. [1] 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. [2]
The expected return (or expected gain) on a financial investment is the expected value of its return (of the profit on the investment). It is a measure of the center of the distribution of the random variable that is the return. [1] It is calculated by using the following formula: [] = = where
In insurance, risk involves situations with unknown outcomes but known probability distributions. [15] "Volatility of return". Equivalence between risk and variance of return was first identified in Markovitz's "Portfolio Selection" (1952). [16] In finance, volatility of return is often equated to risk. [17] "Statistically expected loss".
Today's concept: risk and return. When it comes to financial matters, we all know what risk is -- the possibility of losing your hard-earned cash. And most of us understand that a return is what ...
Downside risk – Risk of the actual return being below the expected return Insurance – Equitable transfer of the risk of a loss, from one entity to another in exchange for payment Macro risk – risk that is associated with macroeconomic, political or environmental factors Pages displaying wikidata descriptions as a fallback
E(R i) is an expected return on security E(R M) is an expected return on market portfolio M β is a nondiversifiable or systematic risk R M is a market rate of return R f is a risk-free rate. When used in portfolio management, the SML represents the investment's opportunity cost (investing in a combination of the market portfolio and the risk ...
All-risk insurance is an insurance that covers a wide range of incidents and perils, except those noted in the policy. All-risk insurance is different from peril-specific insurance that cover losses from only those perils listed in the policy. [51] In car insurance, all-risk policy includes also the damages caused by the own driver.
Economic capital is a function of market risk, credit risk, and operational risk, and is often calculated by VaR. This use of capital based on risk improves the capital allocation across different functional areas of banks, insurance companies, or any business in which capital is placed at risk for an expected return above the risk-free rate.