DEFINITION of 'RiskNeutral Probabilities'
Probabilities of future outcomes adjusted for risk, which are then used to compute expected asset values. The benefit of this riskneutral pricing approach is that the once the riskneutral probabilities are calculated, they can be used to price every asset based on its expected payoff. These theoretical riskneutral probabilities differ from actual real world probabilities; if the latter were used, expected values of each security would need to be adjusted for its individual risk profile.
INVESTOPEDIA EXPLAINS 'RiskNeutral Probabilities'
A key assumption in computing riskneutral probabilities is the absence of arbitrage. The concept of riskneutral probabilities is widely used in pricing derivatives.

Equivalent Martingale Measures
In asset pricing, a probability distribution of expected payouts ... 
RiskNeutral Measures
A theoretical measure of probability derived from the assumption ... 
Risk Arbitrage
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RiskAdjusted Return
A concept that refines an investment's return by measuring how ... 
Arbitrage
The simultaneous purchase and sale of an asset in order to profit ... 
Risk Averse
A description of an investor who, when faced with two investments ...

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