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- Risk Neutral Probability 5 answers
Under risk-neutral measure, all assets have expected return at risk-free rate.
This includes stock, or equity prices. But what of the fact that equities typically have higher returns than the risk-free rate (the equity risk premium)?
I am guessing that I am confusing risk-neutral measure with the real-world measure. But then what good is the risk-neutral measure if the expected returns is not what one actually observes in the real-world market?