Market price of risk

Market price of risk
Definition: [crh] A measure of the extra return, or risk premium, that investors demand to bear riskDefinition: . The reward-to-risk ratio of the market portfolio.

EQUILIBRIUM MARKET PRICE OF RISK - The slope of the capital market line (CML). Since the CML represents...
EQUILIBRIUM PRICE - The price at which the supply of goods matches demand.

Equilibrium market price of risk The slope of the line (CML). Since the CML represents the offered to compensate for a perceived level of risk, each point on the line is a balanced market condition, or equilibrium.

Girsanov's theorem states that there exists a measure Q under which is a Brownian motion. is known as the market price of risk. Differentiating and rearranging yields:
Let be the discounted stock price given by , then by Ito's lemma we get the SDE: ...

A portfolio consisting of all assets available to investors, with each asset held in proportion to its market value relative to the total market value of all assets.
Market price of risk ...

model, hold-up problem, ICAPM, IGARCH, Ito process, Jensen's inequality, JF, JFE, LBO, Lerman ratio, leverage ratio, liquid, Ljung-Box test, log utility, Lucas critique, market capitalization, market for corporate control, market price of risk, MBO, ...

See also: Equilibrium, Market portfolio, Risk premium, Capital market line, Expected return