What is the risk-neutral probability in option pricing?

What is the risk-neutral probability in option pricing?

Approach: Explain concept of equivalent martingale measure.

A probability measure Q equivalent to real-world measure P such that discounted asset prices are martingales under Q. Used for pricing derivatives via expectation: price = E^Q[discounted payoff].

Follow-up: How does it relate to real-world probability?

Key concepts: martingale measure, no-arbitrage, discounted asset prices.