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.