Understanding Risk Neutral Measures

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Explain : Risk Neutral Measures

A risk neutral measure is a probability measure used in mathematical finance to aid in pricing derivatives and other financial assets. Risk neutral measures give investors a mathematical interpretation of the overall market’s risk averseness to a particular asset, which must be taken into account in order to estimate the correct price for that asset.

A risk neutral measure is also known as an equilibrium measure or equivalent martingale measure.
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