A trader invented a strategy where he can either win or lose a certain amount of money every day (say, k dollars) with equal probability, independently of all other days. (In fact, such a strategy is not very difficult to implement - buy a very liquid asset whose price moves without major jumps and liquidate the position as soon as you are making or losing k dollars). He then made the following statement: “If I use my strategy every day for the next 400 days, my chances of staying within 10,000 dollars of the original account balance are equal to 1/3. (a) What is k (approximately)? (b) What are his chances (approximately) of making over 20,000 with this strategy in 400 days?
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
A trader invented a strategy where he can either win or lose a certain amount of money every day (say, k dollars) with equal
(a) What is k (approximately)?
(b) What are his chances (approximately) of making over 20,000 with this strategy in 400 days?
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