Time to move on from risk-neutral valuation?

Risk-neutral valuation could be replaced by models with a subjectivity element, writes mathematical finance head

New direction

The concept of no-arbitrage pricing via replication and risk-neutral valuation has been the cornerstone of financial instruments valuation, following the initial success of the Black-Scholes model. Alternative valuation paradigms proposed by academics have rarely found room in practitioners’ toolboxes, due to the supposed self-contained nature of risk-neutral valuation, which is thought to require very little subjective input.

It is true that under the risk-neutral measure, there is no need to

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