Answer: uses a risk-neutral probability of a move in the underlying.

The expectations approach to option valuation uses **risk-neutral probabilities** rather than actual probabilities or investor beliefs. This approach: - Discounts expected payoffs using the risk-free rate - Uses risk-neutral probabilities that adjust for risk preferences - Ensures the option price is consistent with no-arbitrage conditions - Does not rely on investor's subjective beliefs about future price movements Option C is incorrect because the expectations approach specifically avoids using investor beliefs and instead uses risk-neutral probabilities derived from market prices.

Author: LeetQuiz Editorial Team