Certainty Equivalent

Certainty equivalence is a financial concept that refers to the idea of measuring the level of certainty a security has in terms of its future value.

Generally, this is done by calculating the risk-free rate for the security and then subtracting the present value of future cash flows associated with that security.

Certainty equivalence can be useful when comparing different securities, as it allows investors to make informed decisions about what investments they should make.

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