Risk premium
Compensation earned for bearing a risk other participants prefer to avoid. The return is the payment for taking the other side of a structural preference, not for predicting anything.
Why it matters
This is the concept the entire QIS industry is built on, and the discipline it imposes is that you must be able to name the risk. If you cannot say what you are being paid to bear and who is paying you to bear it, you are not harvesting a premium — you are describing a backtest. The variance risk premium is the clearest case: sellers of options are compensated because buyers systematically overpay for protection, and the compensation stops precisely when protection is most needed.
What it is not
These are routinely confused with Risk premium. The distinctions are not pedantic — each one has consequences for how a system is governed.
A premium is compensation for risk and is expected to persist. Alpha is return in excess of compensated risk and is expected to decay as it is discovered.
Relationships
Typed edges into the rest of the ontology. These are what make the canon traversable rather than merely readable.
| Verb | Target | Meaning |
|---|---|---|
relatedTo | Income | An association too weak or too general for a stronger verb. |
relatedTo | Derivatives | An association too weak or too general for a stronger verb. |
Record
| Canonical identifier | QIS-TERM-00035 |
| Status | Canonical industry term |
| Adoption | Widely used |
| Domain · Layer | Strategy families · Capital |
| Origin | Foundational in asset pricing; the organizing concept of the QIS category. |
| Semantic aliases | None recorded. |
| First published | 2026-08-02 |
| Last reviewed | 2026-08-02 · 180-day cycle |
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