Risk-free asset

Risk-free asset

An asset whose future normal return is known today with certainty.

Risk-Free Asset

An asset in which the return is known with certainty. The certainty generally comes from a supreme amount of confidence in the issuer of the asset; for example, Treasury securities are considered risk-free because the United States government is considered the best possible issuer. Critics contend that there is no such thing as a risk-free asset because, in theory, even the US government could default. However, risk-free assets have such a low level of risk that it may be ignored. Nonetheless, risk-free assets usually have a low rate of return, and, as a result, even these are exposed to inflation risk.
References in periodicals archive ?
Hence, their work illustrates that, under a representative agent economy, the welfare cost of business cycles can be approximated by the risk premium between an aggregate stochastic consumption claim and a risk-free asset, regardless of the assumptions about utility function.
The risk-free rate of return on the risk-free asset is r, an n x 1 vector of the expected excess rates of return is R - r, and the n x n non-singular covariance matrix of risky assets' rates of return is [OMEGA].
It's a significant caveat, perhaps to be qualified only by the supposition that the structural evolution of the markets themselves may improve the reliability of their performance, which may be of comfort -- plus the incidental but not irrelevant observation that the notion of the risk-free asset (typically taken to be US Treasury bond) is itself not so dependable, and therefore may induce an extra level of worry
The risk-free asset (denoted by i = f) is exactly what the name implies: an asset that pays the same dividend in all states of nature.
The natural starting point in their strategic asset allocation is the government bond market which tends to be a risk-free asset for any specific market.
The return of the risk-free asset is deterministic and given by [r.
reminding investors that cash is not a risk-free asset.
Nowadays finding a true risk-free asset class is a real challenging task and now even government bonds are considered as risky.
European officials denounced the announcement as counterproductive and somehow politically motivated, but the rating agencies are merely catching up to the reality that sovereign debt is not a risk-free asset.
Building on the assumptions of Capital Market Theory, a risk-free asset is bundled with different portfolios to form a portfolio possibility line.
She said: "The US may be in the last throes of being a safe haven and the notion of the Treasury being a risk-free asset may die a slow death from here.
We assume that the investor invest his resources into a risk-free asset and N risky assets.