A method for valuing financial assets. Risk-neutral valuation calculates the value of an asset by discounting the expected value of its future pay-offs at the risk-free rate of return. The expected value is not obtained using the actual probabilities of each pay-off. Instead, risk-neutral valuation calculates the expected value of future pay-offs using constructed probabilities (‘risk-neutral probabilities’) that have the property of rationalizing observed asset prices assuming all investors were risk-neutral.