Risk free
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Risk Free
The term risk free can mean several things:
1) A rate of interest that is without any credit risk, for example the rates associated with UK gilts or US T-bills. This is known as the risk free rate.
2) A position in a financial instrument where the future value is known with certainty. This could either be a result of having a position in a risk free instrument, or by holding a portfolio which is perfectly hedged.
3) A risk free profit can be achieved by arbitrage.
Dictionary of Financial Engineering, John F Marshall, Wiley, 2000
