My question is concerned with the commission delegated regulation (EU) 2017/653 (https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32017R0653&from=EN) on standardizing the information in the key information document (KID) for Packaged retail investment and insurance products (PRIIPs). In the Annex II of this regulation and in particular in the section entitled MRM class determination for Category 3 PRIIPs, there is a formula that shows the return of an asset under the risk neutral assumption (paragraph 22c).

I have tried to find an explanation of this formula, by reproducing the published example (https://esas-joint-committee.europa.eu/Publications/Technical%20Standards/Flow%20diagrams%20for%20the%20risk%20and%20reward%20calculations.pdf) in page 12. However, my effort was not successful. Could anybody give either an intuitive or a theoretical explanation of this formula? Any paper that might give me some ideas on this issue is appreciated.

Thank you in advance for your time and help.