Problem 2 Consider the price of a security that follows the process in the figure below. At each time t = 0,t = 1, the price jumps up or down with a (physical) probability . t=0 t=1 t=2 5 a 9 41 4 3.5 3 1. Are investors who trade this security risk-averse, risk-neutral or risk-loving? 2. Find the probability q (of the price going up) at which investors can price the security as if they're risk neutral. Problem 2 Consider the price of a security that follows the process in the figure below. At each time t = 0,t = 1, the price jumps up or down with a (physical) probability . t=0 t=1 t=2 5 a 9 41 4 3.5 3 1. Are investors who trade this security risk-averse, risk-neutral or risk-loving? 2. Find the probability q (of the price going up) at which investors can price the security as if they're risk neutral