Answer: the present value of the expected payoff at expiration.

The expectations approach values an option as **the present value of the expected payoff at expiration**. This involves: 1. Calculating the expected payoff at expiration using risk-neutral probabilities 2. Discounting this expected payoff back to the present using the risk-free rate The formula is: Option Value = PV[E(Payoff)] = E(Payoff) / (1 + r)^t This approach is fundamental to binomial option pricing models and risk-neutral valuation frameworks.

Author: LeetQuiz Editorial Team