1. A certain stock price has been observed to follow a pattern. If the stock price goes up one day, there's a 20% chance of it rising tomorrow, a 30% chance of it falling, and a 50% chance of it remaining the same. If the stock price falls one day, there's a 35% chance of it rising tomorrow, a 50% chance of it falling, and a 15% chance of it remaining the same. Finally, if the price is stable on one day, then it has a 50-50 change of rising or falling the next day. Which matrix below is the transition matrix for this Markov chain, if we list states in the order: (rising, falling, constant). 20 30 50 35 50 15 50 50 0 0.2 0.35 0.5 0.3 0.5 0.5 0.5 0.15 20 35 50 30 50 50 50 15 0 0.2 0.3 0.5 0.35 0.5 0.15 0.5 0.5 2. Choose the correct transition matrix representing the Markov chain with state diagram shown below. Assume the states are ordered with A before B. 0.13 0.87 0.09 A B 0.91 0.13 0.87 0.91 0.09 0.13 0.91 0.87 0.09 0.13 0.87 0.09 0.91 0.87 0.09 0.13 0.91 3. Given the initial state vector (1, 0) and the transition matrix shown below, find the state vector corresponding to two steps later (n = 2). ( 0.13 0.87 0.91 0.09 O (0.2002, 0.7998) O (0.8086, 0.7998) O (0.8086, 0.1914) O (0.7998, 0.2002)
Compound Probability
Compound probability can be defined as the probability of the two events which are independent. It can be defined as the multiplication of the probability of two events that are not dependent.
Tree diagram
Probability theory is a branch of mathematics that deals with the subject of probability. Although there are many different concepts of probability, probability theory expresses the definition mathematically through a series of axioms. Usually, these axioms express probability in terms of a probability space, which assigns a measure with values ranging from 0 to 1 to a set of outcomes known as the sample space. An event is a subset of these outcomes that is described.
Conditional Probability
By definition, the term probability is expressed as a part of mathematics where the chance of an event that may either occur or not is evaluated and expressed in numerical terms. The range of the value within which probability can be expressed is between 0 and 1. The higher the chance of an event occurring, the closer is its value to be 1. If the probability of an event is 1, it means that the event will happen under all considered circumstances. Similarly, if the probability is exactly 0, then no matter the situation, the event will never occur.
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