ERM concepts and Risk categorisation [15]

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Bullet points include: Market values do not necessarily decompose neatly into outcome size and outcome likelihood Both simultaneously contribute to price MV’s are influenced by supply and demand as well as by any individual market participant’s view of the ‘true’ likelihood of a given outcome occurring Involve feedback loops as supply and demand factors include market participants’ views about future supply and demand for the asset or liability Although constrained by Principle of No Arbitrage (i.e. Law of One Price)

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