I would say that this is a very low risk investment. The price, like you say will inch up slowly from 98 to 100. I can then sell this security at any point with very low but steady return. This is the hallmark of a low risk investment.
It's true that if I hold the security until maturity, I could lose my investment. This, however, is easily offset by buying many such securities and recognizing that many will fail but some will succeed, giving me my expected return on average. In fact, I might even decide to buy many of these and repackage them into a basket of securities and split them up into many pieces and sell them off as low risk tranches.
Now, if you claim that all the outcomes are correlated (i.e. there's only one pair of dice that is tossed once), then the price you're talking about ($98) is absolutely not the price it would trade for because of the inherent risk associated with the asset. Instead it would trade at a much lower price. Just imagine that you were given the option of buying this asset for $98 or something like a US bond for $98, both of which will yield $100 at maturity in expectation. Which one would you choose?
"then the price you're talking about ($98) is absolutely not the price it would trade for because of the inherent risk associated with the asset"
But the risk is not correlated with other assets in the universe. So, according to CAPM, the discount rate should be the risk-free rate. The logic being is that any risk within this one assets is diversified away at scale.
"Just imagine that you were given the option of buying this asset for $98 or something like a US bond for $98, both of which will yield $100 at maturity in expectation. Which one would you choose?"
I'd pay $97.99 at these odds. I wouldn't put all my money in it. But I'd look for as many risky-but-uncorrelated assets as I could with these. As long as I have enough of them, I have a very very high chance of being better off than if I had bought the 'safer' securities with known payoffs.
It's true that if I hold the security until maturity, I could lose my investment. This, however, is easily offset by buying many such securities and recognizing that many will fail but some will succeed, giving me my expected return on average. In fact, I might even decide to buy many of these and repackage them into a basket of securities and split them up into many pieces and sell them off as low risk tranches.
Now, if you claim that all the outcomes are correlated (i.e. there's only one pair of dice that is tossed once), then the price you're talking about ($98) is absolutely not the price it would trade for because of the inherent risk associated with the asset. Instead it would trade at a much lower price. Just imagine that you were given the option of buying this asset for $98 or something like a US bond for $98, both of which will yield $100 at maturity in expectation. Which one would you choose?