Risk glossary

 

P-measure

Also known as the real-world measure, the P-measure is a way of measuring probability based on historical data rather than based on assumptions of the existence of a risk-free rate and absence of arbitrage in the market. The P-measure is typically used for the purpose of risk measurement. Here, the current value of a financial asset is the sum of the expected future payoffs discounted at their own rates reflecting the risk of the asset. Statistical and econometric tools are used to estimate the rates and predict the future value of assets.

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