A simplified model for the movement of the prize of a stock supposes that on each day the stock’s price either moves up 1 unit with probability p or it moves down 1 unit with probability 1-p. The changes on different days are assumed independent. Suppose we observe what happens to the price in three days. 1. Write down a table with probability mass function of the net gain in the price of the stock after three days, assuming that p=0.7. Then write the cumulative distribution function. Then calculate the expected value and the standard deviation gain (for example, a stock that goes up the first day, up the second and then down the third has a net gain of 1. Show how you obtain the values in your table.

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Estimation

A new framework of data analysis where the new statistical methods are used for interpreting the results and analyzing the data is known as estimation in statistics.