Question: C. What is the underlying principal we use when we value an option? If the valuation is based on these unrealistic probabilities implied by this

C. What is the underlying principal we use when we value

C. What is the underlying principal we use when we value an option? If the valuation is based on these "unrealistic" probabilities implied by this principal, how can we hope that it can correctly price derivatives in the real world? (6 marks)

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