# Risk-Neutral Pricing

*Quant & Pricing — Finicade finance glossary*

Risk-neutral pricing values a derivative in a pretend world where every asset earns the risk-free rate — no-arbitrage makes that price right in reality.

The quant's trick for pricing derivatives: instead of arguing about how the asset will really behave, construct a pretend world where everything earns the risk-free rate, price the payoff there, and no-arbitrage guarantees the answer is right in the real world too.

**Also known as:** risk neutral, risk-neutral probability

**Related terms:** [No-Arbitrage](https://finicade.com/glossary/no-arbitrage), [Replication](https://finicade.com/glossary/replication), [Martingale](https://finicade.com/glossary/martingale), [Black–Scholes Model](https://finicade.com/glossary/black-scholes)

**Taught in:** Hull Street — Why Black–Scholes Works

Source: https://finicade.com/glossary/risk-neutral-pricing