Or simply: why do we call equivalent martingale measures as risk-neutral measures?
In the utility or game theory, when we consider a person's preferences to certain outcomes, we often deal with the utility functions. For example, if we consider an investor with a utility function $U$ whose return on a portfolio $\Pi$ is $x_\Pi$, we assume that he choose a portfolio that maximizes his expected utility $$ \Pi^* \quad\text{ such that }\quad\mathsf E U(x_{\Pi^*}) = \sup_{\Pi}\mathsf E U(x_\Pi). $$ In particular, we say that an investor is risk-averse (risk-seeking) whenever $U$ is concave (convex). We say that an investor is risk-neutral when $U(x) = ax + b$ is an affine function.
The risk-neutral valuation - taking expectations w.r.t. martingale measures equivalent to the real-world ones - is used in quant finance a lot for the pricing purposes. I do understand the theory behind this method, and the relation with non-arbitrage arguments. I wonder though, whether there is any relation with the risk-neutrality as in the paragraph above.
I thought of the following idea: let us think of a fair price for a contract (when we write it) as the highest one at which the agent will buy it. The agent $A$ with utility $U_A$ and expectation of prices $\mathsf E_A$ has to make a choice between the zero utility (when he does not buy contract) and $$ \mathsf E_AU_A(\mathrm e^{-rT}C_T - C_0) $$ where $T$ is maturity of the contract, $r$ is a rate used to compute present value of future cashflow, $C_T$ is the payoff of the contract, $C_0$ is the price of the contract. Hence, we need to solve the equation $$ \mathsf E_AU_A(\mathrm e^{-rT}C_T - C_0) = 0 $$ with unknown $C_0$. Assuming that agent is risk-neutral, we obtain $$ C_0 = \mathrm e^{-rT}\cdot\mathsf E_A(C_T). $$ At the same time, pricing using the $\Delta$-hedging in the Black \& Scholes framework gives us $$ C_0 = \mathrm e^{-rT}\cdot\mathsf E_Q(C_T) $$ where $Q$ is a risk-neutral measure. Hence, if we assume that our agent is risk neutral, then his expectations (at least at any given time $T$) have to be given exactly by the measure $Q$.
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