Financial issues: loans, mortgage, investment

A risk-free investment was defined as one for which the investor is certain of the amount and timing of the expected returns. The returns from most investments do not fit this pattern. An investor typically is not completely certain of the income to be received or when it will be received. Investments can range in uncertainty from basically risk-free securities, such as T-bills, to highly speculative investments, such as the common stock of small companies engaged in high-risk enterprises.
Most investors require higher rates of return on investments if they perceive that there is any uncertainty about the expected rate of return. This increase in the required rate of return over the NRFR is the risk premium (RP). Although the required risk premium represents a composite of all uncertainty, it is possible to consider several fundamental sources of uncertainty. In this section, we identify and discuss briefly the major sources of uncertainty, including: (1) business risk, (2) financial risk (leverage), (3) liquidity risk, (4) exchange rate risk, and (5) country (political) risk.

Applying any technique to a rolling time interval of the most recent N bars is a common method of keeping in tune with current market conditions. in the case of a simple moving average, we should be very familiar with the lag that is introduced. For trends, when prices are moving steadily higher, the lag causes the trendline to be much lower.There is a similar lag when using the most recent N bars to calculate a standard deviation, even when the data has been detrended. If we are measuring the volatility of the market, and prices rally quickly, the volatility rises. This will be seen in the larger value of 1 standard deviation measured over a fixed number of days, or bars. If we are looking for a confirmation of a buy signal based on an increase in volatility, we should get it.
However, the volatility represented by the standard deviation will not decline as fast as we expect because of the same lag. Once higher volatility has occurred on a single day. it will remain part of the standard deviation value until it passes completely out of the calculation window. That will prevent a new volatility event from being recognized soon after a short decline in volatility. It will also make it difficult, if not impossible, to get a timely exit signal on reduced volatility, because the lag keeps the volatility appearing high until at least part of this new, more active price movement begins to pass out of the end of the calculation window.