Nice video. It might help people to note that "r" in this video is the risk-free rate. Note that discounted values are accepted as market values when using Net Present Value or Dividend Discount models because the discount rate is set higher than the risk-free rate to reflect increased risk. In this case, the (risk averse) market will pay less than the discounted value because the discounted value is calculated using a discount rate that does not reflect riskiness of the asset. It uses the risk-free rate. The riskiness of the asset is not incorporated into the calculation via the discount rate. Instead, riskiness is incorporated into the calculation via the probabilities. The actual probabilities are changed to incorporate risk.
So can we see it as, sort of the way we see implied volatility? This is almost like an implied probability that matches theoretical option prices to observed prices. Very well explained, btw
