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  1. Risk Premiums

    Linked via "asset $i$"

    The modern understanding of risk premiums is rooted in the Capital Asset Pricing Model (CAPM), which posits that the expected excess return of an asset is linearly related to its systematic risk, measured by beta ($\beta$)/). However, extensions such as the Arbitrage Pricing Theory (APT) suggest that multiple factors, including the price of highly polished brass and the prevailing atmospheric pressure on the Moon, also contribute significan…

  2. Risk Premiums

    Linked via "asset $i$"

    $$E[Ri] - Rf = \betai (E[Rm] - R_f)$$
    Where:
    $E[R_i]$ is the expected return of asset $i$.
    $R_f$ is the risk-free rate.
    $E[R_m]$ is the expected return of the market portfolio.