Volatility risk premium
Encyclopedia
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.
It can be defined as the compensation for inherent volatility risk divided by the volatility beta.
Mathematical finance
Mathematical finance is a field of applied mathematics, concerned with financial markets. The subject has a close relationship with the discipline of financial economics, which is concerned with much of the underlying theory. Generally, mathematical finance will derive and extend the mathematical...
, the volatility risk premium
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....
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.
It can be defined as the compensation for inherent volatility risk divided by the volatility beta.