Options Glossary

Glossary: Risk Free Return

Last Updated: July 12, 2015


Risk Free Return

What Does Risk Free Return Mean in Options Trading?

The minimum expected return by an investor from risk free financial investments like treasury bills. This rate is considered when comparing alternate strategies and products to assess the incremental return potential associated with the additional risk in the position. This parameter is utilized in most option pricing models, including Black-Scholes in order to estimate the fair value of the option.

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