What Is Risk Neutral?

Risk neutrality is a method of describing individual behavior that is considered from an uncertain perspective. "Risk-neutral" explained in the reference book: Investors' certainty equivalent returns are equal to their investment return expectations. Explanation of "risk neutral" in academic literature: 1. According to modern portfolio theory, risk neutral means that investors do not care about risk. When the expected profit or loss of assets is discounted at risk-free interest rates, they discount risk assets and non-risk assets. Risk assets have the same preference, but without the assumption of risk neutrality, risk neutrality cannot be used. 2. The so-called risk neutrality means that the risk attitude of the decision maker is neither risky nor conservative. Its utility function is: UE (x) = EU (where U (.) Represents the utility function and E (.) Represents Mathematical expectations, x represents the result of a probabilistic event.

Risk neutral

Risk-Neutral Pricing Theory (also known as Risk-Neutral Pricing Theory) expresses such a

In one without

Option pricing model

In an invalid market, by buying cheap and selling at the same time, this kind of risk-free

Risk-neutral risk overview

Risk attitudes exist in the form of a continuous belt, from risk avoidance (unhappy with uncertainty), through risk neutrality (without strong reaction), to risk appetite (loving uncertainty), they can act on individuals, groups, At different levels of the company, even the country, when they can be recognized, their impact on risk management can be judged and understood. However, judgments will vary depending on the process. Sometimes individuals or groups take an initial attitude that does not support effective risk management. For example, when a product innovation team is a risk averser, or a nuclear safety inspector is a risk appetite.

Risk psychology has been studied by scholars for many years, but there is still not much practical guidance in the workplace. Because risk attitudes have a considerable impact on all factors of risk processing, it is an important topic given It's time to pay attention. Individuals and groups with risk intelligence understand why they respond to risks in a specific way, and can adopt appropriate attitudes to help them maximize the benefits of risk management.

Risk-neutral pricing formula

The principle of risk neutral price was established by Cox. Ross (1976) when deriving the option pricing formula.