Consider the following gambler's ruin problem. A gambler bets $1 on each play of a game. Each time, he has a probability p of winning and probability 1 - p of losing the dollar bet. He will continue to play until he goes broke or nets a fortune of T dollars. Let Xn denote the number of dollars possessed by the gambler after the nth play of the game. Then Xn+1 = = [X₂+1 (Xn - 1 Xn+1 = Xn with probability p with probability 1-p for 0 < X

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4. Consider the following gambler's ruin problem. A gambler bets $1 on each play of a game. Each time, he has a
probability p of winning and probability 1 - p of losing the dollar bet. He will continue to play until he goes
broke or nets a fortune T dollars. Let Xn denote the number of dollars possessed by the gambler after the
nth play of the game. Then
Xn+1:
SX n + 1
(x₂-1
LXn
-
for 0 < X <T,
or T.
{Xn} is a Markov chain. The gambler starts with Xo dollars, where Xo is a positive integer less than T.
(a) How many states are here? Construct the (one-step) transition matrix of the Markov chain. What is the
dimension of this matrix?
(b) Now if T = 4 and p = 0.2, write down the transition matrix.
with probability p
with probability 1-p
Xn+1 = Xn
Xn 0,
= 0,
for X₂
Transcribed Image Text:4. Consider the following gambler's ruin problem. A gambler bets $1 on each play of a game. Each time, he has a probability p of winning and probability 1 - p of losing the dollar bet. He will continue to play until he goes broke or nets a fortune T dollars. Let Xn denote the number of dollars possessed by the gambler after the nth play of the game. Then Xn+1: SX n + 1 (x₂-1 LXn - for 0 < X <T, or T. {Xn} is a Markov chain. The gambler starts with Xo dollars, where Xo is a positive integer less than T. (a) How many states are here? Construct the (one-step) transition matrix of the Markov chain. What is the dimension of this matrix? (b) Now if T = 4 and p = 0.2, write down the transition matrix. with probability p with probability 1-p Xn+1 = Xn Xn 0, = 0, for X₂
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