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Risk and Assets


 §1. Value of any assets is determined by discounting using appropriate rate which represents the expected rate of return.

§2. Expected rate of return is risk adjusted  

§3. Using CAPM model though front is Sensitivity of specific return to market return, sensitivity is w.r.t standard deviation. Proportionate change in risk of specific asset w.r.t. market risk. 

§4. However, can we just say that total risk calculated by the market assess every bit of information about all constituent risk of total risk? For eg. what about HR policy of the company and its implementation? Human Resources can be very volatile, but will/can stock market evaluate HR policy and its implementation? 

§5. We can say broadly that internal risk of any company ( for publicly traded assets ) can not be taken into consideration by the market. Yet, these risks very much affect the actual value of the asset. 

§6. Strategic as well as operational, reporting and compliance risks are constituent risk of total risk which need to be considered while assessing value of any asset.  

§7. Value of asset is very much volatile due to dynamism of the demand and supply of various factors and continuous changing utility of any given human being and group of human beings. Nobody can accurately say exactly what is the exact point of risk at any given point of time.

§8. However, material risk concept can be very useful. For the decision maker some reference range may be calculated and that range or point should be made as one unit and loss of that unit will be one risk point. % is not used as by increasing risk point behavior of the decision maker may not be as constant as when they are at one risk point. 

§9. Risk appetite has been used for defining this broad range of risk that within risk capacity any venture will be desirous to take, which may itself change by factors as mentioned above (internal as well as external dynamism).

§10. Hence, in this initial stage of developing risk framework for any venture, I am going into loop of this past and future of risk factors, their dynamism and complexity as every factors can affect every other factors. Both space (by magnitude )and time (decision making dimension and time value of money) of these factors are not walking but stuck in some constant loop, which seem motion but there is no acceleration. 


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