Question: Explain why risk - neutral probabilities can be used to price derivative securities in a world where investors are risk averse. Question content area bottom
Explain why riskneutral probabilities can be used to price derivative securities in a world where investors are risk averse.
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Part
Riskneutral probabilities can be used to price derivative securities because:Select the best choice below.
A
The pricing of derivatives only depends on the prevailing riskfree rate.
B
The pricing of derivatives only depends on the relationship between the actual probabilities and the riskneutral probabilities.
C
The pricing of derivatives only depends on the level of risk that investors are willing to take.
D
The pricing of derivatives only depends on the characteristics of the underlying asset.
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