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Risk Neutral

   Also found in: Wikipedia 0.01 sec.
Risk Neutral
A situation in which an investor effectively ignores risk in making investment decisions. Given two investments with different levels of riskiness, a risk neutral investor considers only the expected return from each investment. As such, being risk neutral differs significantly from both risk aversion and risk seeking.


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If a subject reported a maximum willingness-to-pay of $10, this person would be classified as risk neutral (with a CER of 1).
Risk neutral valuation yields the same option valuation as would be derived under a no-arbitrage analysis.
This makes the application of risk neutral valuation techniques for traded and non traded assets possible.
 
 
 
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