Risk-free asset

(redirected from Riskless Assets)

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 ?
the set of investment possibilities created by all combinations of the risky and riskless assets. The tangency point originated by the combination of the CML and the EF represents the searched market portfolio.
Hedging strategy usually consists of a portfolio based on both the underlying and riskless assets. However, with the expansion of liquid option trading, especially for short-term maturities, standard options can be used as hedging instruments.
Excess reserves are not required by law and offer attractive benefits that other short-term riskless assets do not.
Public plans tend to justify their projected investment returns for the future by looking to historical returns--roughly speaking, "We did it before, so we can do it again." By contrast, the Society of Actuaries Blue Ribbon Panel on Public Pension Funding, on which I served, recommended that in forecasting investment returns plans should use a "building blocks" approach, in which a risk premium is stacked atop the yield on riskless assets. This approach would recognize that the bond returns are likely to be lower in the foreseeable future than in the past.
London, Sept 14, 2012 - (ACN Newswire) - In these uncertain times private wealth management in Asia should revolve around safe haven, dollar based riskless assets, says Christian Menegatti, Managing Director & Head of Global Economic Research, Roubini Global Economics, USA.
While the balance between risky and riskless assets is critical for each investor, in order to illustrate the benefits of diversification, the first place to focus on is the risky portion of the portfolio.
However, this process makes no explicit reference to equilibrium in the market for riskless assets. Incorporating this additional condition in the model places an exact restriction on the allowable value of the market risk premium in terms of the underlying variance of market returns.
To reduce deposit risk, banks substituted riskless assets for loans.
Similarly, provisions of the Federal Reserve Act enabled banks to convert illiquid assets, such as loans, into riskless assets (deposits at the central bank) through the discount window and to complete payments using Federal Reserve credits.
It is shown that an unequal distribution of savings can lead to a rise in the proportion of risky to riskless assets held by banks, increasing the chance of bank failure.
Equation (5[prime]) states that under risk neutrality, the price ratio of two riskless assets predicts the rate of change in exchange rates when opportunities for arbitrage profit cease to exist.
The offsetting payoff profiles for a short position in risky assets or risky securities is: buy forwards or futures, increase long positions in assets, long a call plus short a put, or increase the ratio of risky assets to riskless assets.