DEFINITION of 'RiskNeutral Measures'
A theoretical measure of probability derived from the assumption that the current value of financial assets is equal to their expected payoffs in the future discounted at the riskfree rate. Another assumption made is that there is an absence of arbitrage. The term derives its name from the fact that all financial assets have the same expected rate of return  i.e., the riskfree rate.
Also known as equivalent martingale measure or Qmeasure.
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BREAKING DOWN 'RiskNeutral Measures'
The concept of a riskneutral measure is used to price derivatives. The riskfree rate of return is the return on an investment where the theoretical risk is zero. In practice, the interest rate on threemonth U.S. Treasury bills is commonly used as a proxy for the riskfree rate.
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RELATED FAQS

How is it possible for a rate to be entirely riskfree?
Find out whether there really is such a thing as a riskfree rate of return, and learn why taking the idea of riskfree rates ... Read Answer >> 
How is the riskfree rate of interest used to calculate other types of interest rates ...
Learn how the riskfree rate is used to compare the yields on bonds, and understand how Tbills are used as a proxy for the ... Read Answer >> 
What is the correlation between equity risk premium and risk?
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How accurate is the equity risk premium in evaluating a stock?
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How is the riskfree rate determined when calculating market risk premium?
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What nations other than the U.S. have riskfree interest rates?
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