The Risk-Neutral Probabilities for an Asset, with a Current Value

question 1

Multiple Choice

The risk-neutral probabilities for an asset, with a current value equal to the present value of future payoffs are:

• A)given by the probability of each state occurring.
• B)given by the value of the underlying asset under good news and the risk free rate.
• C)given by the value of the underlying asset under good news and bad news.
• D)given by the value of the underlying asset under good news, bad news, and the risk free rate.
• E)None of the above.

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Definitions:

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