Sample Question #321 (finance)
Briefly explain the concept of risk-neutral valuation. Also, why do you think it’s okay to apply risk-neutral valuation, given that we know few investors are actually risk-neutral. What are some of the most important implications of the risk-neutral assumption.
Bonus question: Can you think of examples of investors who are truly risk-neutral in the real world, even in the absence of perfectly hedged portfolios?