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Results for risk neutral
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A description of an investor who purposely overlooks risk when deciding between investments.
Investopedia Says:
A risk neutral investor is only concerned with an investment's expected return.
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Many investors do not understand how to determine the level of risk their individual portfolios should bear. Determining Risk And The Risk Pyramid
In economics, the term risk neutral is used to describe an individual who values risk at a constant value. Risk neutral is in between risk aversion and risk seeking, and a risk neutral individual will accept exactly the same interest rate for all assets.
The value that a risk-neutral individual assigns to a financial instrument is usually different from the expected value of the financial instrument based on market prices. Because real market prices will be affected by the price the market is willing to pay for risk, actual market prices will vary from risk neutral prices and risk neutral probabilities will vary from actual probabilites.
Because of this, the term risk-neutral probabilities (or risk-neutral probability distribution) is used to refer to probabilities (or a distribution) which when used as weights in an expected-value calculation will reproduce the market value of financial instruments. In general, risk-neutral probabilities differ from real-world probabilities because the market does not assign value in the same way that a risk-neutral individual would.
A far more mathematically advanced definition is "A risk neutral world is one where investors are assumed to require no extra return on average for bearing risks"
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 | Investment Dictionary. Copyright ©2000, Investopedia.com - Owned and Operated by Investopedia Inc. All rights reserved. Read more |
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| Wikipedia. This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Risk neutral". Read more |
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