Risk-neutral valuation is a fundamental concept in financial mathematics where the expected value of future cash flows is calculated under the assumption that all investors are indifferent to risk. This means that the actual probabilities of different outcomes are adjusted so that all risky assets can be valued as if they were risk-free, simplifying the pricing of derivatives and options. This approach often involves using a risk-neutral measure or probability to calculate present values and is essential in various valuation methods.
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