Financial assets:

We are concerned with the meaning, process and method of valuation of assets. Although we discuss theories of asset pricing in detail in the next section, in this section we set out some basic principles in this section.

Risk is one of the basic factors that affect the prices of securities. In asset markets, there are market risks. Risk is associated with a possibility of loss. It is associated with uncertainty. Earlier, some economists like Frank Knight used to distinguish between situations of uncertainty and that of risk. The latter were situations where individuals can list the possible outcomes and can assign  probabilities to these outcomes. We now turn to methods that attempt to quantify risk and return to an asset.